Fire the Manager to Improve Performance? Managerial Turnover and Incentives after Privatization in the Czech Republic

36 Pages Posted: 19 May 2004

See all articles by Jana P. Fidrmuc

Jana P. Fidrmuc

Warwick Business School - Finance Group

Jan Fidrmuc

L.E.M., Université de Lille; Brunel University - Department of Economics and Finance; CESifo (Center for Economic Studies and Ifo Institute); Global Labor Organization (GLO); Institute for Strategy and Analysis, Government Office of the Slovak Republic

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Date Written: April 2004

Abstract

This Paper analyses the effect of the introduction of managerial incentives and new human capital on enterprise performance after privatization in the Czech Republic. We find weak evidence for the presence of managerial incentives: only in 1997, three to four years after privatization, does poor performance significantly increase the probability of managerial change. Nevertheless, replacing the managing director in a newly privatized firm improves subsequent performance. This indicates that the privatized firms operate below potential under the incumbent management. We show that the institutional framework matters as well: managerial turnover improves performance only if the management is closely interconnected with the board of directors and thus holds effective executive authority.

Keywords: Privatization, managerial change, incentives, restructuring, corporate governance

JEL Classification: G32, G34, P31

Suggested Citation

Fidrmuc, Jana P. and Fidrmuc, Jan, Fire the Manager to Improve Performance? Managerial Turnover and Incentives after Privatization in the Czech Republic (April 2004). Available at SSRN: https://ssrn.com/abstract=547786

Jana P. Fidrmuc

Warwick Business School - Finance Group ( email )

Warwick Business School
Coventry CV4 7AL
United Kingdom

Jan Fidrmuc (Contact Author)

L.E.M., Université de Lille ( email )

France

Brunel University - Department of Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 266 528 (Phone)
+44 1895 269 770 (Fax)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

Institute for Strategy and Analysis, Government Office of the Slovak Republic ( email )

Bratislava
Slovakia

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