Discrimination, Managers, and Firm Performance: Evidence from "Aryanizations" in Nazi Germany

Abstract

Large-scale increases in discrimination can lead to dismissals of highly qualified business leaders who belong to targeted groups. We study how the forced removal of Jewish managers in Nazi Germany, caused by surging antisemitism, affected large firms. The loss of Jewish managers led to large and persistent stock price reductions for affected firms. Dividend payments and returns on assets also declined. The effect of losing Jewish managers was distinct from other shocks that hit German firms after 1933, for example Nazi policies or firm-specific demand shocks. A back-of-the-envelope calculation suggests that the aggregate market valuation of firms listed in Berlin fell by 1.8 percent of German GNP because of the expulsion of Jewish managers. The findings imply that discrimination can lead to persistent and first-order economic losses.

JEL Classification: G30, J7, J71, N24, N34, N8