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

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  • Maria Guadalupe

    () (Columbia University)

  • Julie M. Wulf

    () (Harvard Business School, Startegy Unit)

Abstract

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.

Suggested Citation

  • Maria Guadalupe & Julie M. Wulf, 2008. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization," Harvard Business School Working Papers 09-067, Harvard Business School.
  • Handle: RePEc:hbs:wpaper:09-067
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    Citations

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    Cited by:

    1. Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, INFORMS, vol. 60(12), pages 2859-2885, December.
    2. Rasel, Fabienne, 2014. "Combining technology and work organization: An analysis of complementarity between IT and decentralization across firms of different size," ZEW Discussion Papers 14-071, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Conconi, Paola & Legros, Patrick & Newman, Andrew F., 2012. "Trade liberalization and organizational change," Journal of International Economics, Elsevier, vol. 86(2), pages 197-208.
    4. Mion, Giordano & Opromolla, Luca David, 2014. "Managers' mobility, trade performance, and wages," Journal of International Economics, Elsevier, vol. 94(1), pages 85-101.
    5. Mion, Giordano & Opromolla, Luca David & Sforza, Alessandro, 2016. "The Diffusion of Knowledge via Managers' Mobility," CEPR Discussion Papers 11706, C.E.P.R. Discussion Papers.
    6. Andrea Patacconi, 2009. "Coordination and delay in hierarchies," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 190-208.
    7. Eichhorst, Werner & Kendzia, Michael J. & Schneider, Hilmar & Buhlmann, Florian, 2013. "Neue Anforderungen durch den Wandel der Arbeitswelt," IZA Research Reports 51, Institute for the Study of Labor (IZA).
    8. ITO Koji, 2013. "Impact of Growing Imports: A comparison of international and domestic firms in the Japanese manufacturing industry (Japanese)," Discussion Papers (Japanese) 13034, Research Institute of Economy, Trade and Industry (RIETI).
    9. Giordano Mion & Luca David Opromolla, 2011. "Managers' Mobility, Trade Status and Wages," CEP Discussion Papers dp1044, Centre for Economic Performance, LSE.
    10. Paola Conconi & Patrick Legros & Andrew F. Newman, 2008. "Trade Liberalization and Organizational Choice," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-172, Boston University - Department of Economics.

    More about this item

    Keywords

    organizational change; hierarchy; organizational structure; incentives; complementarities; decentralization; competition;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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