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Are Smaller (Larger) Corporate Headquarters Better?

Listed author(s):
  • MIYAJIMA Hideaki
  • OGAWA Ryo
  • USHIJIMA Tatsuo

This paper investigates the size and performance effect of corporate headquarters for a large sample of Japanese firms. We find that the size of headquarters is systematically associated with firm attributes such as scale, industrial scope, and research and development (R&D) and advertising intensities. We also observe that better governed firms have larger headquarters in contrast to the view that corporate headquarters are apt to be overstaffed due to agency problems. Our analysis of firm value suggests that enlarging headquarters involves a cost that is particularly great for diversified firms. Specifically, as headquarters grow in size, the efficiency of inter-business fund flow declines. This novel finding suggests that downsizing headquarters can improve firm performance by increasing allocative efficiency.

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File URL: https://www.rieti.go.jp/jp/publications/dp/17e004.pdf
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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 17004.

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Length: 36 pages
Date of creation: Jan 2017
Handle: RePEc:eti:dpaper:17004
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  14. David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters,in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446 World Scientific Publishing Co. Pte. Ltd..
  15. Caves, R.E. & Krepps, M.B., 1993. "FAT: The Displacement of Nonproduction Workers and the Efficiency of U.S. Manufacturing Industries," Harvard Institute of Economic Research Working Papers 1653, Harvard - Institute of Economic Research.
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