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Fire the manager to improve performance?

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  • Jana P. Fidrmuc
  • Jan Fidrmuc

Abstract

This paper analyses the effect of the introduction of managerial incentives and new human capital on enterprise performance immediately after privatization in the Czech Republic. We find weak evidence for the presence of managerial incentives: only from 1997, 3 to 4 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. Copyright (c) 2007 The Authors Journal compilation (c) 2007 The European Bank for Reconstruction and Development .

Suggested Citation

  • Jana P. Fidrmuc & Jan Fidrmuc, 2007. "Fire the manager to improve performance?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15, pages 505-533, July.
  • Handle: RePEc:bla:etrans:v:15:y:2007:i::p:505-533
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0351.2007.00285.x
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    1. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, January.
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    Cited by:

    1. Muravyev, Alexander & Bilyk, Olga & Grechaniuk, Bogdana, 2009. "Firm Performance and Managerial Turnover: The Case of Ukraine," MPRA Paper 13685, University Library of Munich, Germany.

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