CEO Replacements and Firm Growth: Correcting for Small-Sample Bias in Fixed Effects Estimates (with Miklos Koren and Almos Telegdy) [pdf]
We study how much CEO replacements contribute to firm growth and show that traditional fixed effect estimates substantially overstate CEO influence and create spurious trends due to small-sample bias. We introduce a placebo-controlled, difference-in-differences method using non-changing firms to correct bias in second moments. Simulations confirm the method is robust to persistent shocks, short tenures, and unbalanced panels. Naive estimates on 60,000 Hungarian CEO transitions attribute 40–60% of revenue variance to CEO changes; our debiased method finds 20–30%. The corrected estimates show immediate, persistent effects without false pre-trends.
The Macroeconomics of Managers: Supply, Selection and Competition (with Miklos Koren) [pdf]
Good management practices are important determinants of firm success. It is unclear, however, to what extent pro-management policies can shape aggregate outcomes. We use data on corporations and their top managers in Hungary during and after its post-communist transition to document a number of salient patterns. First, the number of managers is low under communism when most employment is in large conglomerates. After the transition to capitalism, the number of managers increased sharply. Second, economics and business degrees became more popular with capitalist transition. Third, newly entering managers tended to run smaller firms than incumbent managers. We build a dynamic equilibrium model to explain these facts. In the model, the number and average quality of managers react to schooling and career choice. We use the model to evaluate hypothetical policies aiming to improve aggregate productivity through management education and corporate liberalization. Our results suggest that variations in the supply of good managers are important to understand the success of management interventions.
The Inception of Capitalism through the Lens of Firms (JMP) [pdf]
(awarded the Stigler Center Dissertation Fellowship)
Using firm-level data, I analyze one of the largest economic experiments of the twentieth century, the fall of communism. Post-communist economies experienced a sharp decline and slow recovery of output. This paper studies the output pattern of these countries using microdata from Hungary from both communist and market economy times (1986-1999). I propose a novel decomposition of output change which allows me to quantify the role of productivity, inputs and allocative efficiency in output change. I find that the majority of the output drop is accounted for by a reduction in labor input. In contrast, the recovery in the 1990s largely reflects gains from within-industry reallocation of inputs toward more productive firms. Next, I explore the mechanisms through which the fall in labor and the gains in allocative efficiency operated. I find that during communism a large share of firms employed an inefficiently high number of people given the wages firms paid. During the transition these firms saw their employment decrease 40% more relative to other firms. In particular, these firms shed more low-educated, blue-collar, older, and female workers. The evidence is consistent with the interpretation that the corporate sector in communism provided a social safety net in addition to producing output. With regard to the recovery, I provide evidence consistent with the bank privatization having improved allocative efficiency of capital by removing frictions caused by state banks.
Firm and Worker Effects of an Affirmative Action Labor Market Policy: Evidence from South Africa (with Daniel Brink)
Entrepreneurship and Training: Evidence from post-apartheid South Africa
Effects of Bank Privatization (funded by Fama-Miller Research Grant)
Banking and Firms' Trading Activity
Innovation and the Transition to a Market Economy
Using patent data I characterize innovation in communist economies, and contrast it with innovation in market economies. Standard models predict that innovation in market economies is an important driver of growth, relative to non-market economies. I show that firms in communist economies produced a large amount of patents. Using name matching algorithms I combine microdata on firms and their patents, both before and after the fall of communism in Hungary. The goal of the project is to understand how innovative behavior was affected by the transition to a market economy, and how this change relates to the puzzling slow recovery of output in post-communist countries after the fall of communism.
Local Elections and Municipal Debt Financing (with Anya Nakhmurina)
We explore whether governors’ political party affiliations affect the cost of borrowing of municipalities in their state. We estimate the reaction of within-state-issued municipal bond yields to the outcome of close gubernatorial elections. Using both parametric and non-parametric identification strategies, we find that municipal bond yields significantly increase upon the unexpected election of a Democratic gubernatorial candidate, relative to the unexpected election of a Republican gubernatorial candidate. Our results are consistent with the party affiliation of the governor being an additional source of heterogeneity in default risk premia across U.S. states.
Innovation and Finance (with Greg Buchak)
Managers and International Trade (with Miklos Koren and Almos Telegdy)