Mobility Restrictions and Risk-Related Agency Conflicts: Evidence from a Quasi-Natural Experiment

Mobility Restrictions and Risk-Related Agency Conflicts: Evidence from a Quasi-Natural Experiment

Emdad Islam, Ronald Masulis, Lubna Rahman

Series number :

Serial Number: 
665/2020

Date posted :

March 05 2020

Last revised :

March 23 2020
SSRN Share

Keywords

  • Career Concerns • 
  • Risk-Related Agency Conflicts • 
  • Founder CEOs

Stricter enforcement of manager post-employment restrictions that strengthen trade secrets protections also limits managers’ ability to accept better employment opportunities.

We find that heightened managerial career concerns due to these mobility restrictions reduce firm risk  taking and distort corporate financing decisions, particularly in firms whose managers value outside employment opportunities relatively more. The quality of firm investment decisions is also compromised, as indicated by more negative market reactions to acquisition announcements. These findings support managerial career concerns driving risk-related agency conflicts that reduce firm value. Our evidence suggests that shareholders benefit from flexible labor markets that promote managerial risk-taking.
 

Authors

Real name:
Emdad Islam
Real name:
Lubna Rahman