Library Header Image
LSE Theses Online London School of Economics web site

Human capital and decision making within the firm

Metzger, Daniel (2011) Human capital and decision making within the firm. PhD thesis, London School of Economics and Political Science.

Download (3MB) | Preview


This thesis analyzes the market for executive and non-executive directors of firms with particular emphasis on the role of human capital such as industry expertise. The first chapter analyzes how the human capital of CEOs affects corporate decision making and ultimately corporate performance. Analyzing diversifying mergers and acquisitions, it shows that CEO characteristics matter for the bidders' performance in takeovers. When the bidding CEO has experience in the target's industry, the abnormal announcement returns are between two and three times higher than those generated by a CEO who is new to that industry. We provide evidence that this performance is mainly driven by an experienced CEO's ability to capture a larger fraction of the surplus. Industry experts redistribute surplus in favor of their share- holders by negotiating better deals and by paying a lower premium. We also ?nd that industry expert CEOs select low surplus deals on average. We argue that this evidence is consistent with industry experts having superior negotiation ability. The second chapter analyzes the determinants of the board structure (including human capital, such as industry expertise) in banks. We show that country charac- teristics explain most of the cross-sectional variation in bank board independence. In contrast, country characteristics have little explanatory power for the fraction of outside bank directors with experience in the banking industry. Exploiting the time-series dimension of the sample, we show that changes in bank characteristics are not robustly associated with changes in board independence, while changes in board experience are positively related to changes in bank size and negatively re- lated to changes in performance. The evidence suggests that country-speci?c laws and regulations a?ect the composition of boards of banks mainly through require- ments for director independence. The third chapter analyzes the careers of top executive directors. Using a sam- ple of board members of the largest US companies, I provide exhaustive descriptive statistics on several dimensions of their careers. For instance, I am analyzing the career paths of CEOs with respect to their industry experience and their promotion within and between ?rms. Investigating CEO turnovers in detail, I report several new ?ndings that raise potential questions for future research. Moreover, it also analyzes how changes in the market environment such as shocks to certain indus- tries a?ect their career progression. I show that individuals whose industries are performing badly are less likely to be promoted to a CEO position. These ?ndings suggest that luck is not only a?ecting CEO pay but also who is promoted to a CEO position at ?rst. A promising route for future research might be a more rigorous analysis of the within-?rm dynamics of executive careers.

Item Type: Thesis (PhD)
Additional Information: © 2011 Daniel Metzger
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Sets: Departments > Economics
Supervisor: Ferreira, Daniel and Bandiera, Oriana

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only


Downloads per month over past year

View more statistics