Does hiring a manager improve efficiency – owner vs. non-owner management control of rice mills

In: Journal of economic studies, Band 50, Heft 4, S. 718-733

Abstract

PurposeIn this study, the impact of owner-operator and non-owner operator rice mills on productive efficiency is investigated.Design/methodology/approachPrimary data collected from a survey of 111 rice mills in the Mwea region of Kenya are used. A metafrontier approach is employed to measure overall technical efficiency which is decomposed into managerial and organisational efficiency.FindingsThe results reveal no significant difference in overall technical and managerial efficiency between owner and non-owner operated mills. However, a significant difference exists in organisational efficiency of mills: non-owner operated mills were found to be performing significantly better than owner-operated.Practical implicationsThe authors provide supporting evidence to the study and discuss some of the significant policy implications stemming from the study.Originality/valueIt is recognised that for owners to take the risk of divesting control to a hired manager rather than manage the firm themselves can have major strategic, financial and often emotional consequences. However, there is little empirical evidence on how production efficiency will develop as a result of hiring a manager with the underlying economic theory providing ambiguous guidance. Standard economic theory assumes that firms behave as profit maximisers, which can be achieved by operating efficiently. However, this may not always be the case and as the literature indicates, this may especially be so for small businesses in low- and middle-income countries.