Working Paper: CEPR ID: DP4351
Authors: Jana P. Fidrmuc; Jan Fidrmuc
Abstract: This Paper analyses the effect of the introduction of managerial incentives and new human capital on enterprise performance after privatization in the Czech Republic. We find weak evidence for the presence of managerial incentives: only in 1997, three to four years after privatization, does poor performance significantly increase the probability of managerial change. Nevertheless, replacing the managing director in a newly privatized firm improves subsequent performance. This indicates that the privatized firms operate below potential under the incumbent management. We show that the institutional framework matters as well: managerial turnover improves performance only if the management is closely interconnected with the board of directors and thus holds effective executive authority.
Keywords: corporate governance; incentives; managerial change; privatization; restructuring
JEL Codes: G32; G34; J40; P31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| managerial change (M54) | enhanced productivity (O49) |
| previous management was ineffective (H12) | firms operated below their potential (D21) |
| ownership structure (G32) | managerial accountability (M48) |
| concentrated ownership (G34) | likelihood of managerial changes (M51) |
| managerial turnover (M51) | performance outcomes (L25) |
| managerial turnover improves performance when managing director is linked with board (G34) | enhanced productivity (O49) |