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Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed Rail

Listed author(s):
  • P. CHARNOZ

    (Insee,Crest et Université Paris-Sud)

  • C. LELARGE

    (Insee)

  • C. TREVIEN

    (Insee,Crest et Sciences-Po)

We document the impact of travel time between affiliates and headquarters of geographically dispersed corporate groups on the management of such business organizations. Theory suggests that the easier circulation of managers might facilitate the transmission of information between production plants and headquarters, thus fostering growth and functional specialization (on production activities) at remote affiliates and decreasing operational costs at the group level. We test these predictions on the population of French corporate groups, using the expansion of the High Speed Rail network as an arguably exogenous shock on internal travel times. Results are most pronounced in the service industries, where information to be transmitted is arguably softer (Petersen and Rajan, 2002): we estimate that HSR induced the creation of one production job for the average affiliate in these industries (against 0.2 job in retail, trade or manufacturing industries), and the shift of around one managerial job from affiliate to HQ. These results are robust to alternative identification strategies addressing the problem of the endogenous placement of the HSR infrastructure (use of high-dimensional fixed effects controlling for local and affiliate-level shocks as in Giroud, 2013 and evidence from un-realized lines as in Donaldson, 2014). At the group level, descriptive regressions suggest that the impact on the operational profit margin is around 0.5 percentage points in most industries.

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File URL: https://www.insee.fr/en/statistiques/fichier/2022142/G2016-02.pdf
File Function: Document de travail de la DESE numéro G2016-02
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Paper provided by Institut National de la Statistique et des Etudes Economiques, DESE in its series Documents de Travail de la DESE - Working Papers of the DESE with number g2016-02.

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Date of creation: 2016
Handle: RePEc:crs:wpdeee:g2016-02
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