Abstract
It is well established that management practices have on average a significant and large impact on firm output after controlling for a range of standard factors such as other inputs, industry etc. We investigate non-linearities in the impact of management practices on firm performance using Gaussian process and a continuous piece-wise linear approach with probabilistically smoothed endogenous breaks. In all cases we find significant evidence of a U-shaped relationship: the impact of better management practices are 40% smaller than previously thought for the majority of the population but between 3 and 7 times larger for firms in the top tail.
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