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[Forthcoming Article] "Firm-Specific Human Capital, Organizational Incentives, and Agency Costs: Evidence from Retail Banking?", par Tomasz Obloj

16 May 2013

Tomasz Obloj's research explores conflicting implications of firm-specific human capital (FSHC) for firm performance. His paper will be published in the Strategic Management Journal . Tomasz Obloj is assistant Professor at HEC Paris, at the Strategy and Business Policy department.

Tomasz Obloj, Douglas Frank, Firm-Specific Human Capital, Organizational Incentives, and Agency Costs: Evidence from Retail Banking?, Strategic Management Journal , forthcoming


Abstract

This paper explores conflicting implications of firm-specific human capital (FSHC) for firm performance. Existing theory predicts a productivity effect that can be enhanced with strong incentives. We propose an offsetting agency effect: FSHC may facilitate more-sophisticated “gaming” of incentives, to the detriment of firm performance. Using a unique dataset from a multiunit retail bank, we document both effects and estimate their net impact. Managers with superior FSHC are more productive in selling loans but are also more likely to manipulate loan terms to increase incentive payouts. We find that resulting profits are 2 percentage points lower for high-FSHC managers. Finally, profit losses increase more rapidly for high-FSHC managers, indicating adverse learning. Our results suggest that FSHC can create agency costs that outweigh its productive benefits. 

Keywords

agency costs, organizational incentives, performance pay, adverse learning, human capital, banking 


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