Distance to Frontier, Manager Turnover, and Economic Growth

Abstract

We apply a dictionary method to Standard & Poor’s Capital IQ microdata on CEO changes, in order to construct a country-level manager turnover index. Next, we study the relation between manager turnover, distance to the technology frontier and economic growth in a panel of countries. Our findings give empirical support to Acemoglu, Aghion and Zilibotti’s (2006) theoretical model: low manager turnover rates become negatively correlated with growth as countries get closer to the technology frontier. Our results are robust to different (mild or strict) definitions of manager change motive, as well as to a weighted (by firm size) version of the turnover index. We also address endogeneity issues by instrumenting our manager turnover index with the Doing Business “number of procedures to open a new business” variable. JEL codes: O4 , O43 , O47 , O33 , G32, G34