Discussion paper

DP11312 Management as a Technology

Are some management practices akin to a technology that can explain company 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 basic 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 effect 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 (fall) in the level (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 cross-country total factor productivity differences.

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Citation

Van Reenen, J, N Bloom and R Sadun (2016), ‘DP11312 Management as a Technology‘, CEPR Discussion Paper No. 11312. CEPR Press, Paris & London. https://cepr.org/publications/dp11312