Work

Corporate governance, meritocracy, and careers

Year: 2024

Type: article

Abstract: Firms may pursue non-meritocratic promotion policies at the cost of lower profitability, if they yield private benefits of control. Corporate governance standards that limit these private benefits favor meritocratic promotions and therefore encourage workers’ skill acquisition. Managerial incentive pay has ambiguous effects on workers’ skill acquisition: it fosters the supply of skilled labor, while reducing firms’ willingness to promote skilled workers to managerial positions. Social welfare increases with the share of meritocratic firms, but not necessarily with governance standards: small reforms generate losers and gainers, and may on balance lower welfare, while drastic enough reforms can generate Pareto improvements.

Source: European Finance Review

DOI: 10.1093/rof/rfae042

Authors: Marco Pagano, Luca Picariello

Institutions: Einaudi Institute for Economics and Finance, Centre for Studies in Economics and Finance, University of Naples Federico II

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $5,099