Working Paper: NBER ID: w25539
Authors: Cheng Chen; Claudia Steinwender
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.
Keywords: import competition; productivity; family firms; managerial preferences
JEL Codes: F13; F14; F61; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Import competition (F14) | Productivity in initially unproductive family-managed firms (D29) |
| Increased effort by family managers (D13) | Productivity in family-managed firms (D13) |
| Family management (J12) | Productivity improvements in family-managed firms (D13) |
| Initial productivity levels (O49) | Response to import competition in family-managed firms (J54) |
| Import competition (F14) | Productivity in multigenerational family-managed firms (J54) |
| Import competition (F14) | Productivity in professionally-managed firms (D22) |