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Interdependence and Performance: A Natural Experiment in Firm Scope

Gabriel Natividad () and Evan Rawley ()
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Evan Rawley: Columbia Business School, Columbia University, New York, New York 10027

Strategy Science, 2016, vol. 1, issue 1, 12-31

Abstract: This paper shows how interdependencies influence performance following a reduction in firm scope. We test the predictions of the theory using detailed microdata on every Peruvian fishing firm before and after a regulatory ban on mackerel fishing, finding that a reduction in the scope of activities causes the productivity of firms’ legacy anchovy operations to fall sharply, before recovering in the long run. The results are most pronounced for firms with the strongest interdependencies between activities. Moreover, we find evidence that the persistence of the productivity decline is explicitly tied to a failure to adapt quickly following the ban. Consistent with our conceptual characterization, the evidence suggests that interdependencies between activities simultaneously create benefits as well as costs, but that costs are more persistent when the firm reduces its scope of activities.

Keywords: theory of the firm; corporate strategy; organizational economics; industrial organization; diversification; scope; refocusing; internal organization; interdependence; coordination costs; organizational rigidity; organizational routines; productivity; performance (search for similar items in EconPapers)
Date: 2016
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