No. 116: Biased Executives

Abstract

We examine the presence of biased executives in publicly-listed US companies. Executives are considered biased when others in the firm do not share their beliefs. We document that biased executives are present in as much as 30 percent of our broad-based sample. We also document that biased executives have steeper pay-for-performance incentives than non-biased executives (even when compared to those within the same firm). We show that hiring biased executives is correlated with contractibility problems, the need for information collection and experimentation, and the firm’s uncertainty about the actions of external stakeholders. Finally, we explore the longevity of biased executives in the firm and show that those executives who continue to reveal bias after joining the firm tend to stay longer in the firm compared to those who conform to the majority beliefs in the firm.