Working Paper: NBER ID: w26304
Authors: Namrata Kala
Abstract: The allocation of decision rights within organizations influences resource allocation, expansion decisions, and ultimately outcomes. Using a newly constructed dataset, I estimate the effects of an earned autonomy program for State Owned Enterprises (SOEs) in India. The program gave managers (the board of directors) of profitable SOEs more autonomy over strategic decisions such as capital expansion and the formation of joint ventures. I find that autonomy allows SOEs to increase their capital stock and form more strategic partnerships which leads to greater sales and profits. I also find that the likelihood that a manager subsequently joins a board of a private firm is greater for managers of those SOEs which were granted autonomy, indicating that career concerns is a consistent explanation for these managerial decisions. Taken together, these results indicate that large gains in SOE performance are possible without privatization (by policies like earned autonomy) and may occur partly through managers' career concerns.
Keywords: managerial autonomy; state-owned enterprises; firm outcomes; India; earned autonomy program
JEL Codes: D2; D23; D73; D92; M12; M38; M51; O38; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| earned autonomy program (J24) | increase in capital stock (E22) |
| increase in capital stock (E22) | increase in profits (D33) |
| increase in capital stock (E22) | increase in sales (M31) |
| increase in capital stock (E22) | increase in productivity (O49) |
| earned autonomy program (J24) | increase in probability of forming joint ventures (L24) |
| earned autonomy program (J24) | increase in SOE directors joining private firm boards (G38) |
| earned autonomy program (J24) | increase in profitability (L21) |
| earned autonomy program (J24) | increase in volatility of firm returns (G17) |