Mis-allocation Within Firms: Internal Finance and International Trade

Dalia Marin (TUM School of Management Munich)
Davide Suverato (TUM School of Management Munich)
Thierry Verdier (Paris School of Economics)

Abstract : We offer a novel theory of mis-allocation within firms (rather than between firms) due to manager‘s empire building. We introduce an internal capital market in which managers of multi-product firms compete for funds weithin their firms in a two factor model of multi-product firms with monopolistic competition. Our theory explains why exporters suffer from a lower conglomerate discount than domestic firms (a novel fact that we establish). We show that more open markets impose discipline on internal competition for capital weithin firms, thus improving the efficiency of internal capital markets. Calibrating the model to US data shows that a 35% reduction in trade costs reduces, on average, the excessive financing in the best divisions of multi-product firms from 40% to 6%.

The Organizational Economics of School Chains

Lorenzo Neri (Queen Mary University of London)
Elisabetta Pasini (Queen Mary University of London)
Olmo Silva (London School of Economics)

Abstract : Academics and policy makers are increasingly advocating school autonomy as a way to improve student achievement. At the same time, however, many countries are experiencing a counterbalancing trend: the emergence of ‘chains’ that bind schools together into institutionalized structures with varying degrees of centralization. Despite their prominence, no evidence exists on the determinants and effects of differences in the organizational set-up of school chains. Our work aims to fill this gap. We use the insights of the incomplete contracts literature to study the internal organization of school chains seen as firms. We match detailed survey information on decentralization decisions of procurement activities regarding 410 chains and 2,000 schools in England to student, school and market-level administrative records. We find that chains with a larger share of schools whose leadership background is aligned with the chain board’s expertise, younger chains, and chains that are closer to the market value-added (‘productivity’) frontier decentralize more. We find instead no association between the value-added heterogeneity of the markets in which the chains operate and their decision to delegate. Future work will investigate the link between the structure of school chains and their students’ performance.

Manufacturing in Africa: the Determinants of Location-based Spillovers and Organizational Practices

Daniela Scur (MIT - Sloan School of Management)
Thomaz Teodorovicz (Insper Institute of Education and Research)

Abstract : Much of the research in African manufacturing focuses on small and micro enterprises. In this paper, we focus on medium and large manufacturing firms and present a series of new stylized facts on patterns of ownership, management practices, and organizational structures of these firms. In particular, we contrast the patterns of adoption in Africa versus other developing regions in Latin America and Asia. We document the ability of multinational corporations (MNEs) in these countries to adopt significantly better practices relative to the domestic firms, and explore the determinants of divergent spillovers from MNEs to domestic firms across these areas. We use new data from the Ownership Survey, the World Management Survey and the World Bank’s enterprise survey to exploit variation in firm location and age as determinants of organizational choices. As the largest share of firms are still controlled by their founders, we document the most salient founder characteristics as well as the differences between founder-run firms and other types of ownership structures. We characterize the patterns we present in the stylized facts by placing them in the context of industrial development over decades in Africa.