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

56 Pages Posted: 16 Nov 2008

See all articles by Maria Guadalupe

Maria Guadalupe

Centre for Economic Policy Research (CEPR); INSEAD - Economics and Political Sciences; Institute for the Study of Labor (IZA)

Julie Wulf

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: November 12, 2008

Abstract

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.

Keywords: organizational change, hierarchy, organizational structure, incentives, complementarities, decentralization, competition

JEL Classification: L2, M2, M52

Suggested Citation

Guadalupe, Maria and Guadalupe, Maria and Wulf, Julie M., The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization (November 12, 2008). Harvard Business School Strategy Unit Working Paper No. 09-067, Available at SSRN: https://ssrn.com/abstract=1300524 or http://dx.doi.org/10.2139/ssrn.1300524

Maria Guadalupe

Centre for Economic Policy Research (CEPR)

London
United Kingdom

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Julie M. Wulf (Contact Author)

Harvard Business School ( email )

Harvard Business School
Boston, MA
United States

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