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

  • Maria Guadalupe
  • Julie Wulf

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14491.

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Date of creation: Nov 2008
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Publication status: published as Guadalupe, Maria, and Julie Wulf. 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies." American Economic Journal: Applied Economics, 2(4): 105-27. DOI: 10.1257/app.2.4.105
Handle: RePEc:nbr:nberwo:14491
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