The ties that bind: implicit contracts and the adoption of management technology in the firm
with R. Lemos
Covered on: World Bank’s Development Impact blog, The Economist, LSE Business Review, VoxDev
Awarded Accessit Best Paper at IOEA 2018.
[project website] [CEPR Discussion Paper]
We investigate how implicit contracts between firm managers and employees are linked to the adoption of productivity-enhancing organizational practices. We collect new data on ownership successions and show the first causal evidence that maintaining family control leads to lower adoption of managerial best practices. We use gender composition of the outgoing CEO’s children as identifying variation at the succession point. We explore firm “reputation costs” as a novel mechanism constraining investment in management, and build a new proxy using data on eponymy — firms named after the family name. We find suggestive evidence that implicit contracts matter for management adoption.