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The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies

Raghuram G. Rajan
University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Julie Wulf
Harvard Business School

Review of Economics and Statistics, Forthcoming

Abstract:
Using a detailed database of managerial job descriptions, reporting relationships, and compensation structures in over 300 large U.S. firms, we find that firm hierarchies are becoming flatter. The number of positions reporting directly to the CEO has gone up significantly over time while the number of levels between the division heads and the CEO has decreased. More of these managers now report directly to the CEO and more are being appointed officers of the firm, reflecting a delegation of authority. Moreover, division managers who move closer to the CEO receive higher pay and greater long term incentives, suggesting that all this is not simply a change in organizational charts with no real consequences. Importantly, flattening cannot be characterized simply as centralization or decentralization. We discuss several possible explanations that may account for some of these changes.

Keywords: firm, hierarchy, span of control

JEL Classifications: D21, D23, J3, L2

Accepted Paper Series

Date posted: May 07, 2003 ; Last revised: June 24, 2008

Suggested Citation

Rajan, Raghuram G. and Wulf, Julie M., The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies. Review of Economics and Statistics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=393684 or doi:10.2139/ssrn.393684

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Contact Information

Julie M. Wulf (Contact Author) Harvard Business School ( email ) Harvard Business School Boston, MA United States
Raghuram G. Rajan University of Chicago - Booth School of Business ( email ) 5807 S. Woodlawn Avenue Chicago, IL 60637 United States 773-702-4437 (Phone) 773-702-0458 (Fax)
International Monetary Fund (IMF) ( email ) 700 19th Street NW Washington, DC 20431 United States
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States 773-702-9299 (Phone) 773-702-0458 (Fax)