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Vertical organization of production and firm growth behavior

Author

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  • Fabio Pieri

    (Departamento de Economía Aplicada, Universitat de València)

Abstract

Many industries are characterized by a marked heterogeneity in vertical boundaries among their firms: some firms are vertically integrated in the production of inputs while others adopt disintegration strategies. This paper empirically explores if different vertical organizational forms are associated with unlike growth “behaviors” within the same industry. To this end, an econometric analysis is conducted over a sample of around 500 Italian machine tool (MT) builders for the period 1998-2007. Ceteris paribus, vertically integrated firms show a distribution of growth rates with a higher number of episodes of “moderate” growth, and this is true in case of both output expansion and contraction. Adjustment costs, organizational slacks, a better coordination along the production chain and a more effective handling of changes in customers’ needs may all concur to explain their more “moderate” growth profile with respect to disintegrated firms. This work provides insight into the output dynamics in a mature industry in which both vertically integrated and dis-integrated firms coexist.

Suggested Citation

  • Fabio Pieri, 2015. "Vertical organization of production and firm growth behavior," Working Papers 1508, Department of Applied Economics II, Universidad de Valencia.
  • Handle: RePEc:eec:wpaper:1508
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    References listed on IDEAS

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    More about this item

    Keywords

    Vertical integration; Firm growth; Quantile regression; Variance-vertical integration scaling; Italian machine tool industry;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments

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