All Things Great and Small: Organizational Size, Boundaries of the Firm, and a Changing Environment

The Academy of Management Annals, Volume 9, Issue 1, 715-802, 2015 DOI/10.1080/19416520.2015.1027086

Mays Business School Research Paper No. 2916817

Posted: 15 Feb 2017

See all articles by Matthew Josefy

Matthew Josefy

Indiana University - Kelley School of Business - Management & Entrepreneurship

Scott Kuban

Tulane University - A.B. Freeman School of Business

R. Duane Ireland

Texas A&M University - Department of Management

Michael A. Hitt

Texas A&M University - Department of Management; Texas Christian University

Date Written: March 11, 2015

Abstract

Research findings have established a relationship between organizational size and a substantial set of organizational outcomes, resulting in size's distinction as “perhaps the most powerful explanatory organizational covariate in strategic analysis”. We draw on the theory of the firm to provide a theory-driven definition of firm size and as a framework to organize the diverse research on firm size. We examine studies over the last 20 plus years since the last review of research on organizational size that have expanded our understanding of the advantages and disadvantages of larger firms, the environmental factors that have changed the merits of firms relative to markets, the managerial bias to pursue growth, and the most recent findings on the performance implications of organizational size. In doing so, the review provides extensions to our understanding of the theory of the firm, by integrating contingency theory, the resource-based theory of the firm, leadership theories, and the knowledge-based view of the firm. In addition, based on an extensive review of the measurement methodologies for the most common control variable employed by strategy scholars, this review outlines a rich and robust set of opportunities for future research to explore the nature of organizational size and its effects.

Managerial implications:

The governing coalition of the firm may be overly biased toward growth – potentially increasing the risk of firm failure/discipline by the market – and creating opportunities for greater efficiency by returning to ‘optimal’ firm size. In some sense, size is a barometer of the relative merits of markets versus firm hierarchy. Extremely large firms suggest inefficiencies in the market have rewarded firms for keeping transactions within firm boundaries.

Keywords: Firm Size, Organizational Size, Boundaries of the Firm, Bureaucracy, Complexity, Environment, Hierarchy, Contingency Theory, Legitimacy, Status, Inertia, Scrutiny, Resource-Based, Knowledge-Based View, Economies of Scale, Economies of Scope

JEL Classification: L11, L25, M13, L1, L2, L22, L4, L41, L42

Suggested Citation

Josefy, Matthew and Kuban, Scott and Ireland, R. Duane and Hitt, Michael A., All Things Great and Small: Organizational Size, Boundaries of the Firm, and a Changing Environment (March 11, 2015). The Academy of Management Annals, Volume 9, Issue 1, 715-802, 2015 DOI/10.1080/19416520.2015.1027086; Mays Business School Research Paper No. 2916817. Available at SSRN: https://ssrn.com/abstract=2916817

Matthew Josefy (Contact Author)

Indiana University - Kelley School of Business - Management & Entrepreneurship ( email )

Bloomington, IN 47405
United States

Scott Kuban

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

R. Duane Ireland

Texas A&M University - Department of Management ( email )

430 Wehner
College Station, TX 77843-4218
United States

Michael A. Hitt

Texas A&M University - Department of Management ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-458-3393 (Phone)

Texas Christian University ( email )

Fort Worth, TX 76129
United States

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