Mao Monivann

Student ID: 2015722057

Summary: Why Do Management Practices Differ across Firms and Countries?
Nicholas Bloom and John Van Reenen
In this paper, the authors aim to explain on why productivities are different at the firm and
national level by measuring management practices of firms across many countries.
To measure managerial practices, the two authors used interviewed-based evaluation tool that
will define the score from 1 to 5 based on 18 management practices focusing on three broad
bases namely: Monitoring, Targets and Incentives. Their survey was unusually huge. They
managed to survey more than five thousand firms from 17 countries.
The finding suggests that management practices vary across countries and firms primarily
resulting from a combination of poorly competitive market, firms owned by family, the
restriction of managerial practice caused by regulations, and barriers of informational circulation
allowing bad management to persist.
Among tenth conclusion that Bloom and Van Reenen have presented in the paper, three of them
are most interesting.
1: The richer the country is the better the management will be. As shown in the figure 1
(Management Scores across courtiers), United States has the highest score of firm management
practice followed by Germany, Sweden and Japan whereas India, China and Greece score the
lowest. The reasons that those highly developed countries tend to have better management
practices among firms because those highly developed countries have small tail of badly

managed firms while India and China have long tail of bad management firms. In addition, the
labor regulation and product market competition also contribute to difference of management
practice across countries. For example, lighter labor market regulation in US makes firms easier
to reward high performers and remove poor performers. Additionally, high competitive
geographic market in US has pushed firms to have better managerial practice for survival.
2: Firms run by descendent of the founders (family firms) are badly managed. The explanation
appear to be the custom that oldest son in the family become the CEO of the company regardless
of talents and skills the heir possess. Family firms, in addition, are likely to be subsidized by the
government (estate tax exemption). Firms owned by family generally have less debt and they do
not to be pay for the capital cost as the property or equipment may have long been purchased
since many years ago. Those family firms just need to pay for the operation cost such as wages
and salaries. Since, Family firms are running with comfortableness, the product market
completion would not be effective to drive them out of business. As the result, they do not need
to be very competitive to survive.
3: foreign multinational firms are managed at the first world level almost everywhere. The
authors suggest that multi-foreign firms tend to perform much better management than domestic
firm provided that better managed firms tend to go global. Furthermore, multinational firms
would transfer their know-how of good management to their subsidiaries no matter how hard it
will take.