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Strategy and structure in interaction: What determines the boundaries of the firm?

Author

Listed:
  • Staffan Canback

    (Henley Management College)

  • Phillip Samouel

    (Kingston Business School)

  • David Price

    (Henley Management College)

Abstract

This paper analyzes empirically the boundaries of the firm based on Williamson's perspective on what determines firm size. It uses firm performance (risk-adjusted profitability and growth) as dependent variable; and firm organization, diseconomies of scale (atmospheric consequences, bureaucratic insularity, incentive limits, and communication distortion), economies of scale, and asset specificity as independent variables in a structural equation model. Data were collected from the 784 largest US manufacturing firms in 1998. The results confirm Williamson's framework and show that strategy and structure interact concurrently to determine the boundary of the firm.

Suggested Citation

  • Staffan Canback & Phillip Samouel & David Price, 2003. "Strategy and structure in interaction: What determines the boundaries of the firm?," Industrial Organization 0303003, EconWPA, revised 17 Mar 2003.
  • Handle: RePEc:wpa:wuwpio:0303003
    Note: Type of Document - Acrobat PDF; pages: 7; figures: included
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    References listed on IDEAS

    as
    1. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 527-544.
    2. Joskow, Paul L, 1988. "Asset Specificity and the Structure of Vertical Relationships: Empirical Evidence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 95-117, Spring.
    3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    4. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier.
    5. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
    6. Alfred D. Chandler, 1969. "Strategy and Structure: Chapters in the History of the American Industrial Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530090, January.
    7. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
    8. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
    9. Staffan Canback, 2003. "Bureaucratic limits of firm size: Academic summary," Industrial Organization 0304006, EconWPA, revised 10 Nov 2003.
    10. Mookherjee Dilip & Reichelstein Stefan, 2001. "Incentives and Coordination in Hierarchies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-38, April.
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    12. Masten, Scott E. & Meehan, James Jr. & Snyder, Edward A., 1989. "Vertical integration in the U.S. auto industry : A note on the influence of transaction specific assets," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 265-273, October.
    13. Robert Axtell, 1999. "The Emergence of Firms in a Population of Agents," Working Papers 99-03-019, Santa Fe Institute.
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    More about this item

    Keywords

    transaction cost economics;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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