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

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  • Fidrmuc, Jan
  • Fidrmuc, Jana

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.

Suggested Citation

  • Fidrmuc, Jan & Fidrmuc, Jana, 2004. "Fire the Manager to Improve Performance? Managerial Turnover and Incentives After Privatization in the Czech Republic," CEPR Discussion Papers 4351, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4351
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    Cited by:

    1. Fidrmuc, Jana P. & Fidrmuc, Jan, 2006. "Can you teach old dogs new tricks? On complementarity of human capital and incentives," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 445-458, April.

    More about this item

    Keywords

    corporate governance; incentives; managerial change; privatization; restructuring;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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