DP5581 Measuring and Explaining Management Practices Across Firms and Countries

Author(s): Nicholas Bloom , John Van Reenen

Publication Date: March 2006

Keyword(s): management practices , productivity , competition , family firms

JEL(s): L2 , M2 , O32 , O33

Programme Areas: Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP5581.asp

We use an innovative survey tool to collect management practice data from 732 medium sized manufacturing firms in the US, France, Germany and the UK. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, sales growth and survival rates. Management practices also display significant cross-country differences with US firms on average better managed than European firms, and significant within-country differences with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when (a) product market competition is weak and/or when (b) family-owned firms pass management control down to the eldest sons (primo geniture). European firms report lower levels of competition, while French and British firms also report substantially higher levels of primo geniture due to the influence of Norman legal origin and generous estate duty for family firms. We calculate that product market competition and family firms account for about half of the long tail of badly managed firms and up to two thirds of the American advantage over Europe in management practices.