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Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis


  • Henry Ogden Armour
  • David J. Teece


This paper empirically investigates the proposition that the organization and operation of the large enterprise along "M-form" multidivisional lines favors goal pursuit and least-cost behavior more nearly associated with the neoclassical profit maximization hypothesis than a number of alternative organizational forms. Using a sample of petroleum firms during the period 1955-1973, a positive relationship between M-form structure and profitability is observed during the period in which the M-form innovation was being diffused. This relationship is no longer observed once an organizational form equilibrium is achieved. The results provide support for the "Markets and Hierarchies" paradigm, but additional studies are needed to affirm the generality of the finding.

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  • Henry Ogden Armour & David J. Teece, 1978. "Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 106-122, Spring.
  • Handle: RePEc:rje:bellje:v:9:y:1978:i:spring:p:106-122

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    References listed on IDEAS

    1. Edwin Mansfield & John Rapoport & Anthony Romeo & Samuel Wagner & George Beardsley, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, Oxford University Press, vol. 91(2), pages 221-240.
    2. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-873, December.
    3. Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
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