The fallacy of new business creation as a disciplining device for managers

Frédéric Loss () and Antoine Renucci

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper investigates a negative externality of new business creation. When being perceived as a good manager is a necessary condition to establish a firm in the future, we show that a priori talented managers may indulge in undertaking risky projects now. Indeed, such a choice renders more difficult the updating of believes process regarding their actual types. Unfortunately, this in turn leads them to perform less effort, which comes at the expense of economic efficiency. Hence, the career concerns we examine do not discipline good managers. However, we show that employers can reduce managerial slack by resorting to financial markets monitoring.

Keywords: career concern; business creation; market monitoring; choice of risk (search for similar items in EconPapers)
JEL-codes: D89 G32 G39 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2002-02-01
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http://eprints.lse.ac.uk/24902/ Open access version. (application/pdf)

Related works:
Working Paper: The Fallacy of New Business Creation as a Disciplining Device for Managers (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24902

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