# **3.3.2 Regulations Affecting Firm Ownership Structures**

Policies or institutional settings that condition the ownership structure of firms can have implications on labor market outcomes by altering the rent-seeking conflict between employees and shareholders, distorting incentives of firm owners, or affecting management efficiency. The policies most relevant for increasing within-firm production efficiency vary greatly country by country. In all cases, however, it is key to achieve high management efficiencies—either through the appropriate selection of managers or the right incentive structure.

There is abundant evidence about how good management benefits firm performance and employees. Bender et al. (2018) use highly detailed employer-employee data from Germany to show that plants with higher management scores are more productive. This relationship holds true even after accounting for the fact that high-productivity firms also feature higher average worker skills and are strongly driven by the human capital of the (top) managers. Estimates suggest that a one standard deviation increase in the management score is associated with a 15–21-percent increase in labor productivity. Such well-managed firms are also able to pay their employees higher wages relative to what the market as a whole could offer these workers. The evidence from this and related papers justify a deeper investigation into how more efficient and skilled management teams can be achieved. While such high-quality data do not exist for most LMICs, the main message about good management improving labor productivity also holds in their context. For example, Bloom et al. (2013) find a large causal role of management practices for productivity in Indian textile plants by implementing a randomized controlled trial. Reviewing the evidence for a larger set of LMICs, La Porta and Shleifer (2014) note that unproductive, informal establishments are predominantly run by poorly educated entrepreneurs. To the extent that education improves managerial skills, this is further evidence of the importance of good practices for efficient production and favorable work conditions.

As noted earlier, the type of PMR that are most crucial for aggregate labor market outcomes depends fundamentally on their political and economic context. While land, capital, and intellectual property rights are crucial to efficient firm operation globally, their weak enforcement in LMICs sometimes still impedes delegating tasks beyond kinship ties. Adamopoulos and Restuccia (2020) examine a 1988 land reform in the Philippines, which introduced limits to farm sizes, redistributed land to landless or smallholder families, and imposed barriers to trading property rights on the market. Not only was this reform another example of a size-dependent policy in the fashion of those discussed in Subsection 3.3.3, but it also had direct implications for the management of farms. To quantify the effects of the reform on production efficiency, the authors develop a structural model with endogenous occupational decisions and technology choices. They use farm-level microdata from before and after the reform to discipline the model, and estimate that the reform reduced average farm size and agricultural productivity by 34 percent and 17 percent, respectively. Around one-third of this decline in productivity can be explained by the assignment of land to untalented farmers. Besides hindering the allocation of talent, policies on ownership structures can distort the incentives of managers. In India, Banerjee and Iyer (2005) rely on historical differences in property rights 31