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The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization

  • Maria Guadalupe

    ()

    (Columbia University)

  • Julie M. Wulf

    ()

    (Harvard Business School, Startegy Unit)

This paper establishes a causal effect of competition from trade liberalization on various characteristics of organizational design. We exploit a unique panel dataset on firm hierarchies (1986-1999) of large U.S. firms and find that increasing competition leads firms to become flatter, i.e., (i) reduce the number of positions between the CEO and division managers (DM), (ii) increase the number of positions reporting directly to the CEO (span of control), (iii) increase DM total and performance-based pay. The results are generally consistent with the explanation that firms redesign their organizations through a set of complementary choices in response to changes in their environment.

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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-067.

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Length: 56 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:hbs:wpaper:09-067
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