Hiring, Firing and Infighting: A Tale of Two Companies

We extend the hiring and firing framework of Shepp and Shiryaev (J Econ Dyn Control 20:1523–1539, <CitationRef CitationID="CR5">1996</CitationRef>) to include infighting, and solve the profit-maximization problem using our numerical technique. With infighting, we find a smaller optimal firm size, and lowered firm value that stems from reduced operations and rapid profit-taking. Upon calibrating our model to match the cases of Levi Strauss & Co. and Microsoft, we find with Levi’s, that our model matches media estimates of its loss in value fairly closely. With Microsoft, our model might explain its loss in value and poor decision-making, such as its recent acquisitions. The implications of our model for corporate governance might also help in reducing the current unemployment rate. Copyright Springer Science+Business Media, LLC. 2012