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Interdependence and Performance: A Natural Experiment in Firm Scope

Author

Listed:
  • Gabriel Natividad

    (Department of Economics, Universidad de Piura, Lima 18, Peru)

  • Evan Rawley

    (Columbia Business School, Columbia University, New York, New York 10027)

Abstract

This paper shows how interdependencies influence performance following a reduction in firm scope. We test the predictions of the theory using detailed microdata on every Peruvian fishing firm before and after a regulatory ban on mackerel fishing, finding that a reduction in the scope of activities causes the productivity of firms’ legacy anchovy operations to fall sharply, before recovering in the long run. The results are most pronounced for firms with the strongest interdependencies between activities. Moreover, we find evidence that the persistence of the productivity decline is explicitly tied to a failure to adapt quickly following the ban. Consistent with our conceptual characterization, the evidence suggests that interdependencies between activities simultaneously create benefits as well as costs, but that costs are more persistent when the firm reduces its scope of activities.

Suggested Citation

  • Gabriel Natividad & Evan Rawley, 2016. "Interdependence and Performance: A Natural Experiment in Firm Scope," Strategy Science, INFORMS, vol. 1(1), pages 12-31, March.
    • Handle: RePEc:inm:orstsc:v:1:y:2016:i:1:p:12-31
    DOI: 10.1287/stsc.2015.0004
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