A long-standing question is whether differences in management practices across firms
can explain differences in productivity, especially in developing countries where these spreads
appear particularly large. To investigate this we ran a management field experiment on large
Indian textile firms. We provided free consulting on management practices to randomly chosen
treatment plants and compared their performance to a set of control plants. We find that adopting
these management practices raised productivity by 19% in the first year through improved
quality and efficiency and reduced inventory, and within three years led to the opening of more
production plants. Why had the firms not adopted these profitable practices previously? Our
results suggest that informational barriers were the primary factor explaining this lack of
adoption. Also, because reallocation across firms appeared to be constrained by limits on
managerial time, competition had not forced badly managed firms to exit.