The ties that bind: family CEOs, management practices and firing costs [project website]
with R. Lemos
Covered on: World Bank’s Development Impact blog, The Economist, LSE Business Review, VoxDev
Awarded Accessit Best Paper at IOEA 2018.
Family firms are the most prevalent firm type in the world, particularly in emerging economies. Dynastic family firms tend to have lower productivity, though what explains their underperformance is still an open question. We collect new data on CEO successions for over 800 firms in Latin America and Europe to document their corporate governance choices and, crucially, provide causal evidence on the effect of dynastic CEO successions on the adoption of managerial best practices tied to improved productivity. Specifically, we establish two key results. First, there is a preference for male heirs: when the founding CEO steps down they are 30pp more likely to keep control within the family when they have a son. Second, instrumenting with the gender of the founder’s children, we estimate dynastic CEO successions lead to 0.8 standard deviations lower adoption of managerial best practices, suggesting an implied productivity decrease of 5 to 10%. To guide our discussion on mechanisms, we build a model with two types of CEOs (family and professional) who decide whether to invest in better management practices. Family CEOs cannot credibly commit to firing employees without incurring reputation costs. This induces lower worker effort and reduces the returns to investing in better management. We find empirical evidence that, controlling for lower skill levels of managers, reputational costs constrain investment in better management.
Picking from the top or shedding from the bottom: personnel management, worker quality and firm productivity [slides] [project summary]
with C. Cornwell and I. Schmutte
While it is well established that management practices matter for productivity, the mechanisms behind this stylized fact are less well understood. In this paper, we explore how personnel management practices relate to actual HR outcomes and productivity. We match management practices data from the World Management Survey to AKM estimates of worker and firm fixed effects from ten years of Brazilian employment administrative data. We five key findings: first, consistent with the literature, we find that worker and manager fixed effects are positively correlated with TFP. Second, we find that better managed firms capture a higher share of total employment over time, consistent with a reallocation story. Third, we find evidence of positive recruitment: better managed firms hire a larger share of their new recruits from the top of the distribution of worker fixed effects. Fourth, we find suggestive evidence of better worker matching and retention from lower separation rates. Fifth, we decompose the variation of personnel management practices and find that promotion and retention practices show the strongest correlation with manager fixed effects.
School management and productivity in the public sector: evidence from India [slides]
with R. Lemos and K. Muralidharan
This paper uses two new datasets to study management and productivity in primary schools in India. We report four main sets of results. First, management quality in public schools is low on average, but there is meaningful variation across public schools that is correlated with both independent measures of teaching practice, as well as measures of student value added. Second, we find higher management scores in private schools, and this advantage is mainly driven by differences in people management (as opposed to operations management). Third, we find that the private school advantage over public schools in student value-added is largely accounted for by differences in people management practices. Fourth, we find that the private-school advantage in measures of people management is consistent with independent measures of personnel policy. Specifically, private school teacher pay is positively correlated with measures of teacher value-added, and private schools are more likely to retain teachers with higher value-addition and let go teachers with lower value-addition. Neither pattern is seen in public schools.