Instrumental Variable Estimates of the Effect of Management Practices on Firm Performance in Korean Firms

To empirically examine the unbiased effect of management practice on firm productivity, this paper aims to suggest an instrumental variable approach, which requires less costly method. This study uses three firm-level instrumental variables such as the motivations for organizational reform, empowerment, and IT investment during the organizational reform. For empirical study, we use Korean manufacturing firm-level data that contains information on management score and financial statement. The results of the instrumental variable estimation show that better management practice leads to higher level of firm productivity statistically significantly, while the effect of management practices is statistically insignificant in the ordinary least square estimation.