The Impact of Managers on Firm Productivity: a Team Performance Analysis

Is the variation in rm performance measures attributable to manager quality? Can we identify observable characteristics of managers or firms that are responsible for this quality? Lastly, do high-performing managers promote... [ view full abstract ]

Is the variation in rm performance measures attributable to manager quality? Can we identify observable characteristics of managers or firms that are responsible for this quality? Lastly, do high-performing managers promote high-performing teams? This paper uses a combination of an AKM and a mixture model framework to analyze the impact of management in rm performance. Using a matched employer-employee data set, the goal of this paper is three-fold. First, to identify persistent patterns of management characteristics by means of a quasi-experimental design that takes advantage of manager-switches; second, to evaluate to which extent management impacts employee salary trajectory; lastly, to argue that dimension reduction in production models with two-sided unobserved heterogeneity problems increases estimation precision. Results indicate that 15% of the variation in rm output is attributable to management, with significant heterogeneity in schooling, rm size and economic sector. Furthermore, I find that a one-standard deviation increase in manager quality is related to a 3-4% increase in employee wages. The issue of management impact patterns is of great practical importance to firms and policy makers alike.