Department of Economics
Stanford, CA 94305
NBER Working Papers and Publications
|April 2017||Turbulence, Firm Decentralization and Growth in Bad Times|
with Philippe Aghion, Nicholas Bloom, Raffaella Sadun, John Van Reenen: w23354
What is the optimal form of firm organization during “bad times”? Using two large micro datasets on firm decentralization from US administrative data and 10 OECD countries, we find that firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. We present a model where higher turbulence benefits decentralized firms because the value of local information and urgent action increases. Since turbulence rises in severe downturns, decentralized firms do relatively better. We show that the data support our model over alternative explanations such as recession-induced reduction in agency costs (due to managerial fears of bankruptcy) and cha...