 Turbulence, Firm Decentralization and Growth in Bad TimesPhilippe Aghion, Nicholas Bloom, Brian Lucking, Raffaella Sadun and John van Reenen No 23354, NBER Working Papers from National Bureau of Economic Research, Inc Abstract: What is the optimal form of firm organization during “bad times”? We present a model of delegation within the firm to show that the effect is ambiguous. The greater turbulence following macro shocks may benefit decentralized firms because the value of local information increases (the “localist” view). On the other hand, the need to make tough decisions may favor centralized firms (the “centralist” view). Using two large micro datasets on firm decentralization from ten OECD countries and US administrative data, we find that firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. Using direct measures of turbulence based on product churn and stock market volatility, we show that the localist mechanism dominates. This conclusion is robust to alternative explanations such as managerial fears of bankruptcy and changing coordination costs. Although delegation is better suited to some environments than others, countries with more decentralized firms (like the US) weathered the 2008-09 Great Recession better: these organizational differences account for about 15% of international differences in post-crisis GDP growth. JEL-codes: E0 (search for similar items in EconPapers) Published as Philippe Aghion & Nicholas Bloom & Brian Lucking & Raffaella Sadun & John Van Reenen, 2021. "Turbulence, Firm Decentralization, and Growth in Bad Times," American Economic Journal: Applied Economics, American Economic Association, vol. 13(1), pages 133-169, January. Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23354 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC. |
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