The Diffusion of Knowledge via Managers’ Mobility

Better managers and managerial practices lead to better firm performance. Yet, little is known about what happens when managers move across firms. Does a firm hiring a good manager improve its performance? If yes is there some valuable knowledge the manager has acquired and successfully diffused to the new firm? In order to answer these questions we use information related to specific activities the manager was involved in when working for previous firms. More specifically, we use information on whether the manager has worked in the past for firms exporting to a specific destination country or a specific product. Our data is rich enough to allow controlling for both manager and firm unobservables and wash out any time-invariant ability of the manager as well as overall firm performance. We find that the export experience gained by managers in previous firms leads their current firm towards higher export performance, and commands a sizable wage premium for the manager. We use several strategies to deal with endogeneity including an exogenous event study: the sudden end of the Angolan civil war in 2002. We further refine our analysis by looking at different types of managers (general, production, financial and sales) and show how specific export experience interacts with the degree of product differentiation and/or the financial vulnerability of a firm’s products as well as with rising import competition from China.