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.


Management and Tax Planning Practices [slides]
with Kat Bilicka Habu

​This paper uses data on corporate profits and taxes matched to data on management practices to consider the effect of management practices on tax planning behavior of multinational companies. Management practices improve productivity and hence should increase taxable corporate income of firms. However, better managed firms may also be better at tax avoidance. We show that better managed multinational firms have higher reported profits in low tax countries relative to high tax countries. This is especially true for better managed multinationals from high tax countries. These firms also tend to report close to zero returns on assets in high tax countries. These patterns are consistent with better managed firms shifting profits out of high tax country affiliates into low tax country affiliates. We will further explore these patterns using the confidential population of UK tax returns.

Family firms, female leadership and management in Denmark
with M. Bennedsen and M. Tsoutsoura

We have collect data on management structures of almost 5000 firms in Denmark, mirroring the US Census Management and Organizational Practices Survey. In this project, we match the MOPS Denmark data to family history, production and employee roster datasets to build a unique database to explore new patterns. One key question to explore circles around issues of gender in management styles and productivity. For example, do female CEOs have different management styles and what impact does this have on productivity and workers?


Where the money goes: school management and resource allocation in Brazil
with D. Clarke and T. Teodorovicz

Teachers account for one of the largest chunks of expenditures of public school systems, and teachers are also one of the key inputs into the education production function. Public school systems are often constrained in wage-setting and cannot actively implement incentive-pay schemes. So what works in improving teacher performance in public schools? We explore a change in the funding formula for public schools in Brazil that mandates an exogenously set share of resources that must be used in the teacher wage bill of school systems. This change affected Brazil’s municipalities differently as some received different amounts of funds, and chose to spend their funds in different ways. In this paper, we first provide a long-term look at 20 years of data and document how teacher salaries, number of teachers employed and student-teacher ratios have changed over time in Brazilian municipalities. Secondly, we employ an event study to document how different municipalities responded to the funding change and explore the characteristics that may help explain the heterogeneity in resource usage as well as student outcomes. We propose that management practices across different school systems explains part of the superior/inferior ability of school systems to effectively use and distribute the increase in resources they experienced after the funding formula change.

Measuring and explaining management in schools
with C. Leaver and R. Lemos

Learning in schools across the world has stagnated: children are in school, but often not learning. A shift in thinking about how to improve learning is emphasizing “system-level” reform. Management practices can be an important link in education systems, with evidence from the small set of countries sampled in the World Management Survey pointing to a strong positive relationship between measures of management and student outcomes. Yet the mechanisms behind this finding remain a black box. In this paper, we develop a simple theoretical framework that shows how management practices can affect school performance through channels traditionally examined in the personnel economics literature—the selection and incentive margins of agents. We then take the predictions of this framework to the data. Specifically, we build a new cross-country measure of management structures using the Programme for International Student Assessment (PISA), the largest education dataset currently available. We find that the positive relationship between management and student outcomes holds in 5 of the 6 PISA regions, and present evidence that is consistent with both the selection and incentive mechanisms proposed in the theory.


Developing management: an expanded evaluation tool for developing countries (RISE Working Paper 7) [project website] [slides]
with R. Lemos

Coverage: World Bank blog

There is striking evidence showing a large tail of badly managed schools and hospitals in developing countries across several 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 “activities” within each management area: (1) process implementation, (2) process usage, (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.