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

American Economic Journal: Applied Economics, Vol. 4, pp. 105-127, 2010

36 Pages Posted: 22 Oct 2011

See all articles by Maria Guadalupe

Maria Guadalupe

Centre for Economic Policy Research (CEPR); INSEAD - Economics and Political Sciences; Institute for the Study of Labor (IZA)

Julie Wulf

Harvard Business School

Date Written: 2010

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 U.S. firms (1986-1999) and a quasi-natural experiment (trade liberalization), we find that competition leads firms to flatten their hierarchies: (i) firms reduce the number of positions between the CEO and division managers and (ii) 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.

Suggested Citation

Guadalupe, Maria and Guadalupe, Maria and Wulf, Julie M., The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies (2010). American Economic Journal: Applied Economics, Vol. 4, pp. 105-127, 2010, Available at SSRN: https://ssrn.com/abstract=1946982

Maria Guadalupe (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Julie M. Wulf

Harvard Business School ( email )

Harvard Business School
Boston, MA
United States

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