Working Paper: NBER ID: w22327
Authors: Nicholas Bloom; Raffaella Sadun; John Van Reenen
Abstract: Are some management practices akin to a technology that can explain firm and national productivity, or do they simply reflect contingent management styles? We collect data on core management practices from over 11,000 firms in 34 countries. We find large cross-country differences in the adoption of management practices, with the US having the highest size-weighted average management score. We present a formal model of “Management as a Technology”, and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible non-managerial capital). Our model also predicts (i) a positive impact of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise in the level and a fall in the dispersion of management with firm age. We find strong empirical support for all of these predictions in our data. Finally, building on our model, we find that differences in management practices account for about 30% of total factor productivity differences both between countries and within countries across firms.
Keywords: Management practices; Productivity; Firm performance; International comparisons
JEL Codes: L20; M20; O30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| product market competition (L13) | management quality (L15) |
| firm age (L10) | management practices (M54) |
| management practices (M54) | total factor productivity (TFP) differences (O49) |
| better management practices (M54) | improved firm performance (L25) |
| management scores (M54) | total factor productivity (TFP) (D24) |