The Impacts of Managerial Autonomy on Firm Outcomes
The allocation of decision rights within organizations influences resource allocation, expansion decisions, and ultimately outcomes. Using a newly constructed dataset, I estimate the effects of an earned autonomy program for State Owned Enterprises (SOEs) in India. The program gave managers (the board of directors) of profitable SOEs more autonomy over strategic decisions such as capital expansion and the formation of joint ventures. I find that autonomy allows SOEs to increase their capital stock and form more strategic partnerships which leads to greater sales and profits. I also find that the likelihood that a manager subsequently joins a board of a private firm is greater for managers of those SOEs which were granted autonomy, indicating that career concerns is a consistent explanation for these managerial decisions. Taken together, these results indicate that large gains in SOE performance are possible without privatization (by policies like earned autonomy) and may occur partly through managers' career concerns.
I am grateful to David Atkin, Abhijit Banerjee, Nicholas Bloom, Alessandro Bonatti, Rahul Deb, Joseph Doyle, Esther Duflo, Ray Fisman, Robert Gibbons, Ben Olken, Rohini Pande, Michael Powell, Andrea Prat, Rafaella Sadun, Antoinette Schoar, Tavneet Suri, John Van Reenen, and Michael Whinston for helpful comments. I'm also grateful to seminar audiences at Duke University, the HBS Empirical Management Conference, Tufts University, Columbia University, MIT, The World Bank, Stanford University, UVA, University of California Davis, University of California Berkeley, the NBER Summer Institute, and Jinan University for their feedback. All errors are my own. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.