Do Nice Guys Finish Last? Prosociality in the CEO Labor Market

Prosocial CEOs increase employee motivation but are often slower to implement layoffs. We present a model of CEO-firm matching wherein negative industry shocks that require downsizing asymmetrically reduce the match quality for prosocial CEOs and drive turnover. We find that prosocial CEOs are more likely to be dismissed and replaced with less prosocial successors during periods of intensifying import competition. Prosocial CEOs who are retained receive greater bonus-based pay relative to less prosocial CEOs, consistent with increased financial incentives to engage in downsizing. Our findings highlight a novel selection channel (i.e., increased dismissal) and treatment channel (i.e., increased bonus pay) that decrease CEO prosociality during industry downturns. We also highlight that foreign competition affected not only the firm’s economic activities but also the CEO’s psychological characteristics.

That is from a new paper by Daniel Keum and Nandil Bhatia, via the excellent Kevin Lewis.