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Vertical organization of production and firm growth

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  • Fabio Pieri

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Abstract

This paper empirically explores if different vertical organizational forms (i.e. vertical integration versus dis-integration) give rise to unlike growth ''behaviors'' within the same industry. An econometric analysis is conducted in a sample of around 500 Italian machine tool (MT) builders for the period 1998-2007, implementing instrumental variables to control for the endogeneity of the organizational form in the relation. Ceteris paribus, vertically integrated firms result to be characterized by a less dispersed distribution of growth rates than their dis-integrated counterparts. Several concurring factors, such as adjustment costs, organizational slacks and a better management of fluctuations in the markets of intermediate and final products, may explain the more ÒstableÓ growth profile of vertically integrated firms. By means of analyzing how different organizational forms map into the distribution of output growth rates, this work provides insight into the firm dynamics in a mature industry in which both vertically integrated and dis-integrated firms coexist.

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  • Fabio Pieri, 2016. "Vertical organization of production and firm growth," DEM Working Papers 2016/01, Department of Economics and Management.
  • Handle: RePEc:trn:utwprg:2016/01
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    More about this item

    Keywords

    Vertical integration; Firm growth; Variance-vertical integration scaling relation; Instrumental variables; Quantile regression; 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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