Costs Of Job Rotation: Evidence From Mandatory Loan Officer Rotation

Published Papers
Bhowal, Subhendu., Subramanian, Krishnamurthy., Tantri, Prasanna. (Forthcoming) "Costs Of Job Rotation: Evidence From Mandatory Loan Officer Rotation", Management Science
Abstract:
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. If information is soft and, therefore, non-verifiable, 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.