Working Paper: CEPR ID: DP14285
Authors: Claudia Steinwender; Cheng Chen
Abstract: Abstract When managers have objectives beyond maximizing monetary profits, inefficiencies may arise. An increase in competition may then force managers to improve the productivity of the firm in order to ensure survival. While this hypothesis has received ample theoretical attention, empirical evidence is scarce, mainly because preferences of managers are typically unobserved. In this paper, we exploit the fact that a large literature has documented specific non-monetary preferences of family managers. Using Spanish firm-level data, we compare how family-managed and professionally-managed firms react to import competition shocks. We find that import competition leads to productivity increases in family-managed firms that are initially unproductive. Productivity improvements are driven by family management as opposed to family ownership or non-managing family members. Furthermore, we show that these managers increase efficiency by reducing material usage, which is consistent with them trying to increase their short-term cash flow in order to survive. Finally, productivity improvements seem to be particularly pronounced in multi-generational family firms that also introduce organizational changes.
Keywords: import competition; productivity; family firms; managers
JEL Codes: D22; D23; F14; L21; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Import competition (F14) | Productivity (O49) |
| Family management structure (J12) | Productivity (O49) |
| Increased competition (L13) | Efficiency (D61) |
| Family managers' increased effort to avoid bankruptcy (D14) | Productivity (O49) |
| Import competition (F14) | Family-managed firms' productivity increases (J54) |