The Case for Excellence in Management: The Effects of Management Practices on Productivity

Abstract

It is well established that management practices have on average a significant and large impact on firm output after controlling for a range of standard factors such as other inputs, industry etc. We investigate non-linearities in the impact of management practices on firm performance using Gaussian process and a continuous piece-wise linear approach with probabilistically smoothed endogenous breaks. In all cases we find significant evidence of a U-shaped relationship: the impact of better management practices are 40% smaller than previously thought for the majority of the population but between 3 and 7 times larger for firms in the top tail.

Keywords: Productivity, Management Practices, Superadditive, Complements, Gaussian Process, Bayesian Model Averaging, Piecewise Linear

JEL Classification: D22, D23, D24, L23, L60