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The Careers of Top Managers and Firm Openness: Internal Versus External Labour Markets

Francisco Lima
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JEL Code 
J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
M12 - Personnel Management
M51 - Firm Employment Decisions; Promotions (hiring, firing, turnover, part-time, temporary workers, seniority issues)
This paper studies the careers of top managers using a large panel of firms. The main objective is to empirically evaluate the role of learning and human capital acquisition in promotion dynamics along with variables capturing the formation of internal labour market (ILM) practices. We find that promotion is negatively correlated with tenure, but that there is a non-linear negative duration dependence with elapsed time since the last promotion event. Firms showing a weaker degree of ILM are less prone to promote insiders. We next take the manager's career inside a firm as a sequence of promotion decisions, and use a nested structure of the promotion decision modelled as a nested logit model.  Results show that the top manager's progression nest into four types: loser, early starter, late beginner, and champion, and that the degree of ILM as a signigicant impact on the process of learning inside the firm.
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