The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization
This paper establishes a causal effect of competition from trade liberalization on various characteristics of organizational design. We exploit a unique panel dataset on firm hierarchies (1986-1999) of large U.S. firms and find that increasing competition leads firms to become flatter, i.e., (i) reduce the number of positions between the CEO and division managers (DM), (ii) increase the number of positions reporting directly to the CEO (span of control), (iii) increase DM total and performance-based pay. The results are generally consistent with the explanation that firms redesign their organizations through a set of complementary choices in response to changes in their environment.
We would like to thank Tim Baldenius, Luis Garicano, Tom Hubbard, Amit Khandelwal, Michael Raith, Tano Santos and Catherine Thomas for very helpful comments and discussions, as well as audiences at Columbia, HBS, Rochester, Stanford SITE conference, UCLA, USC, LSE, UCL, NYU-Stern, Harvard-MIT Org Economics seminar, Egon Sohmen Symposium. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Guadalupe, Maria, and Julie Wulf. 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies." American Economic Journal: Applied Economics, 2(4): 105-27. DOI: 10.1257/app.2.4.105