Management Practices and Firm Performance During the Great Recession: Evidence from Spanish Survey Data

Abstract: Does management matter for how plants weather times of economic crisis? Using firm survey data that was collected in Spain just prior to the Great Recession in 2006, we estimate the latent structure of management practices and describe two distinct styles. One style emphasizes - among others - flexibility and flatter hierarchies while the other contains more levels of hierarchy and incentive pay. We show that firm size and other observables do not accurately predict styles. By linking the firm survey to independently collected financial performance data we show that - conditional on having survived - the former firms performed significantly better during the Great Recession. The results are robust to a variety of specifications. Finally, we do not find a relationship between management styles and firm survival during this economic crisis.