Firm Size and Industry Structure under Human Capital Intensity: Insights from the Evolution of the Global Advertising Industry
Andrew Von Nordenflycht
Simon Fraser University (SFU) - Beedie School of Business; Massachusetts Institute of Technology (MIT) - Sloan School of Management
April 1, 2009
Organization Science, Vol. 22, No. 1, pp. 141-157, Jan-Feb 2011
Although existing literature assumes that the human capital intensity of professional services leads to small and flimsy firms, several professional services feature large, long-lived firms. To develop insights about firm size and industry structure in human capital intensive industries, I analyze the structure and evolution of the advertising industry. Drawing on a range of quantitative and qualitative evidence, I develop two hypotheses regarding the industry’s structure and consolidation: (1) size differentiation, in which firm size and industry structure are connected to the size distribution of clients’ projects; and (2) financial intermediation, in which the industry’s consolidation is ascribed to organizational innovations that mitigate transaction costs between external investors and ad agency owners. I then discuss the applicability of these two hypotheses to other professional services. The analysis suggests several new insights about the value of capital, the nature of demand, and the nature of assets in human capital intensive industries.
Number of Pages in PDF File: 17
Keywords: human capital, professional services, industry structure, industry evolution, financial intermediation, vertical differentiation, advertising agencies
JEL Classification: l11, l22, l23, l84, D23, G34Accepted Paper Series
Date posted: May 25, 2009 ; Last revised: April 24, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.610 seconds