American Economic Journal: Applied Economics
no. 1, January 2021
What is the optimal form of firm organization during "bad times"? 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 decentralization in firms in ten OECD
countries (WMS) and US establishments (MOPS administrative data), we find that firms that delegated more power from the central headquarters to local plant managers prior to the Great
Recession outperformed their centralized counterparts in sectors that were hardest hit by the subsequent crisis (as measured by export growth and product durability). Results based on measures
of turbulence based on product churn and stock market volatility provide further support to the localist view. This conclusion is robust to alternative explanations such as managerial fears of
bankruptcy and changing coordination costs. Although decentralization will be suboptimal in many environments, it does appear to be beneficial for the average firm during bad times.
Aghion, Philippe, Nicholas Bloom, Brian Lucking, Raffaella Sadun, and John Van Reenen.
"Turbulence, Firm Decentralization, and Growth in Bad Times."
American Economic Journal: Applied Economics,
Firm Behavior: Empirical Analysis
Equities; Fixed Income Securities
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Organization of Production