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

50 Pages Posted: 7 May 2003  

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

Multiple version iconThere are 2 versions of this paper

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 Classification: D21, D23, J3, L2

Suggested Citation

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

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)

Julie M. Wulf (Contact Author)

Harvard Business School ( email )

Harvard Business School
Boston, MA
United States

Paper statistics

Downloads
467
Rank
37,684
Abstract Views
2,970