Topic: Promotions and the Peter Principle

Speaker: Kelly Shue, Associate Professor of Finance, University of Chicago, Booth School of Business

Date: June 14th (Wednesday)

Time: 10:00-11:30am

Location: Building 4, Room 101

Language: English

Abstract:

The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in their current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the Peter Principle: when making promotion decisions, firms prioritize current job performance at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of managerial mismatch are substantial, suggesting that firms make inefficient promotion decisions or that the incentive benefits of emphasizing current performance is also high.

About the speaker:

Kelly Shue teaches Corporation Finance (35200) in the MBA program and Behavioral Finance (35906) in the PhD program. She earned a PhD and MA in Economics and an AB in Applied Mathematics (summa cum laude) from Harvard University. Prior to her doctoral studies, she worked as an analyst at Weiss Asset Management.

Shue’s academic interests lie at the intersection between behavioral economics and empirical corporate finance. Her research has explored executive social networks, incentives and executive compensation, the gambler’s fallacy, M&A, corporate social responsibility, loan screening, and errors in voting. Her research has been awarded the AQR Insight Award, the Wharton School-WRDS Award for Best Empirical Finance Paper, and the UBS Global Asset Management Award for Research in Investments. Her current research examines persuasive news distortion by firms, contrast effects in market reactions to earnings announcements, and the Peter Principle in promotion tournaments.