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American Economic Journal: Applied Economics: Vol. 2 No. 4 (October 2010)

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The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies

Article Citation

Guadalupe, Maria, and Julie Wulf. 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies." American Economic Journal: Applied Economics, 2(4): 105-27.

DOI: 10.1257/app.2.4.105

Abstract

This paper establishes a causal effect of product market competition on various characteristics of organizational design. Using a unique panel dataset on firm hierarchies of large US firms (1986-1999) and a quasi-natural experiment (trade liberalization), we find that competition leads firms to flatten their hierarchies: firms reduce the number of positions between the CEO and division managers, and firms increase the number of positions reporting directly to the CEO. The results illustrate how firms redesign their organizational structure through a set of complementary choices in response to changes in their environment. We discuss several possible interpretations of these changes. (JEL D23, F13, G34, M12, M51)

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Authors

Guadalupe, Maria (Columbia U and IZA)
Wulf, Julie (Harvard U)

JEL Classifications

D23: Organizational Behavior; Transaction Costs; Property Rights
F13: Trade Policy; International Trade Organizations
G34: Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
M12: Personnel Management; Executive Compensation
M51: Personnel Economics: Firm Employment Decisions; Promotions

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