Costs of Job Rotation: Evidence from Mandatory Loan Officer Rotation

Bhowal, S and Subramanian, K and Tantri, P L (2020) Costs of Job Rotation: Evidence from Mandatory Loan Officer Rotation. Management Science, 67 (4). pp. 2075-2095. ISSN 0025-1909

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Job rotation inside an organization creates two conflicting effects. It disciplines agents by creating the fear that their successors may discover and report their hidden information. Thus, the agent takes actions that align with the principal’s objective. However, job rotation can create a moral hazard problem. If information is soft and therefore, nonverifiable, the principal cannot attribute blame to the agent or the successor. Agents shirk, thereby hurting performance. Thus, the importance of disciplining versus moral hazard effects depends on the availability of hard information. Using unique loan-level data, we show that job rotation hinders performance when the information is soft.This paper was accepted by Giesecke Kay, finance.

Item Type: Article
Subjects: Finance
Date Deposited: 05 Jul 2020 05:17
Last Modified: 12 Jul 2023 19:53

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