Corporate Hierarchies and the Size of Nations: Theory and Evidence

Dalia Marin and Thierry Verdier

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: Corporate organization varies within a country and across countries with country size. The paper starts by establishing some facts about corporate organization based on unique data of 660 Austrian and German corporations. The larger country (Germany) has larger firms with flatter and more decentralized corporate hierarchies compared to the smaller country (Austria). Firms in the larger country change their organization less fast than firms in the smaller country. Over time firms have been introducing less hierarchical organizations by delegating power to lower levels of the corporation. We develop a theory which explains these facts and which links these features to the trade environment that countries and firms face. We introduce firms with internal hierarchies in a Krugman (1980) cum Melitz and Ottaviano (2007) model of trade. We show that international trade and the toughness of competition in international markets induce a power struggle in firms which eventually leads to decentralized corporate hierarchies. We offer empirical evidence which is consistent with the models predictions.

Keywords: international trade with endogenous firm organizations; endogenous congruence in the firm; corporate organization in similar countries; empirical test of the theory of the firm (search for similar items in EconPapers)
JEL-codes: D23 F12 F14 L22 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-cse and nep-int
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Corporate Hierarchies and the Size of Nations: Theory and Evidence (2008)
Working Paper: Corporate Hierarchies and the Size of Nations: Theory and Evidence (2007)
Working Paper: Corporate Hierarchies and the Size of Nations: Theory and Evidence (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:227

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