All in the family? CEO choice and firm organization (with Renata Lemos)
JOB MARKET PAPER
Dynastic family firms are among the most prevalent firm type in the world and are particularly important in emerging economies. We study the relationship between dynastic family control, internal firm organization and outcomes in mid-sized firms in the manufacturing sector using a unique set of cross-country data. We collect new data on governance structure and CEO family characteristics for 818 firms in Latin America and Europe to establish two key empirical results. First, we document a clear preference for male heirs in dynastic family CEO successions: firms with an outgoing founder CEO who had at least one son, conditional on the number of children, are 30 percentage points more likely to have a dynastic CEO. Second, we exploit an IV strategy based on exogenous variation in the gender of the children of outgoing founder CEOs to estimate the causal effects of dynastic CEO succession on management practices. We find that such successions result in -0.81 standard deviations worse management, with an implied productivity decrease of 9\% value added per employee. In considering possible mechanisms, to guide our discussion of the empirical evidence, we build a model where firm owners decide the identity of the CEO (family or professional) and CEOs decide whether to invest in good management practices. Family CEOs cannot credibly commit to firing employees without incurring a utility cost (community backlash, or reputation effect), which induces lower worker effort. This family-specific utility cost reduces the potential returns to investing in good management practices. We find empirical evidence that supports the idea that family firms are worse managed because of lower skill levels, but crucially also because of a reputational constraints on their management practices.

PUBLICATIONS

International Data on Measuring Management Practices, 2016. American Economic Association – Papers & Proceedings
with Nick Bloom, Renata Lemos, Raffaella Sadun and John Van Reenen
[Working Paper] Abstract

 Rapid advances in computer power and increased openness of national statistical agencies have led to unprecedented availability of large datasets. Consider three types of firm datasets. First, governments collect administrative data on firms: information on jobs, investment and output has long been collected to calculate national, industrial and regional statistics. In recent years, the underlying micro-data, typically at the establishment level, have become widely available to researchers in many countries. Second, there has been an explosion of Big Data – various forms of data typically created for business purposes. Although data scraped from the internet, video and other media is more often discussed, the most common form of Big Data for researchers is firm accounts. In most developed countries there is a legal duty to publish basic annual accounts for the protection of investors (even if this is only a name, address and owner), and these have been digitized by private sector firms like Bureau van Dijk (BvD). Products like ORBIS contain over 50 million firms from almost every country in the world and can be used to address many questions. Another example is Compustat, which contains extensive data for about 6,000 listed US firms but excludes the other 99% of private firms. We focus on a third type of international firm data, which is collected from surveys. In an age of rich administrative and Big Data why bother with such surveys?  

 

The New Empirical Economics of Management, 2014. Journal of the European Economic Association, 12(4)
with Nick Bloom, Renata Lemos, Raffaella Sadun and John Van Reenen
[Working Paper] Abstract

Over the last decade the World Management Survey (WMS) has collected firm-level management practices data across multiple sectors and countries. We developed the survey to try to explain the large and persistent total factor productivity (TFP) differences across firms and countries. This review paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively for performance at the level of the firm and the nation. Competition, governance, human capital, and informational frictions help account for the variation in management. We make some suggestions for both policy and future research.

Working papers

Compensation practices, worker mobility, and wage dispersion: evidence from Brazilian employer-employee matched data
with Chris Cornwell and Ian Schmutte Abstract

It is increasingly accepted that firms play an important role in stories of rising wage inequality, but the nature of that role is not well understood. Recent evidence from the US and Germany points to growing disparities in pay between firms as the source of the problem, rather than within-firm pay variance, which has changed relatively little. One possible explanation is that the heterogeneous application of modern management practices has led to increasing firm-specific productivity differences, which, in turn, may have induced a greater degree of worker sorting. In this paper, we explore this possibility using matched employer-employee data from Brazil’s from Relação Anual de Informações Sociais (RAIS) linked to the manufacturing firms covered in the World Management Survey (WMS). Using the RAIS data, we characterize different personnel management profiles that firms use to affect recruiting, motivation, and retention of high-quality workers. With the WMS data, we examine how different personnel management profiles are associated with management quality. In a labor market characterized by search frictions, asymmetric information about worker productivity and shirking, firms should alter the level and sequencing of pay, as well as their portfolio of short and long-term contracts. In Brazil, institutions strongly favor incumbent workers, compounding these management issues. Nevertheless, firms are able to set the level and sequencing of pay, contract types, and termination policies to improve performance. These management practices will alter the sorting of workers with different levels of ability in and out of the firm, along with the observed wage-tenure profile. Therefore, whether workers end up employed in high-paying firms is both a matter of luck, from their perspective, but also related to managerial quality and firm performance. We show that the heterogeneity in pay across firms has two key components that have been conflated in prior work: a level component and a tenure component, both of which can vary across occupations, and drift over time. Because they are associated with management practices aimed at recruiting and retaining talented workers, they also help explain observed increases in sorting between high-wage workers and high-wage firms.

Developing Management: an expanded evaluation tool for developing countries, RISE Working Paper 7
with Renata Lemos Abstract

In recent years, there has been striking evidence showing a large tail of badly managed schools and hospitals in developing countries across a number of management areas such as operations management, performance monitoring, target setting and people management. But where exactly, along the process of setting their management structures, are these organizations failing? This paper presents new evidence from an expanded survey tool based on the World Management Survey instrument. We collect detailed data using face-to-face interviews in settings where weak management practices prevail and observe more variation in the left tail of the distribution. Using this data, we explore three main sub-topics within each management area: (1) process execution and implementation, (2) process usage frequency, (3) process monitoring efficiency and frequency. We have collected data with schools in India and Mexico and are working with teams surveying schools in Colombia and hospitals in China and India.

SELECTED PROJECTS IN PROGRESS

  • Organization in African countries: a first look at management, ownership and organizational structures (with Renata Lemos and Nicolas Lippolis)
  • Why don’t firms just do it? Getting into the black box of management best practices adoption (with Mark Dutz and Caio Piza)
  • School management and teacher quality: evidence from India (with Karthik Muralidharan and Renata Lemos)
  • Where the money goes: teacher wages and student achievement in Brazil (with Damian Clarke)
  • Teaching head teachers: evidence from a large-scale RCT in Mexico (with Renata Lemos and Rafael de Hoyos)