Corporate Hierarchies and the Size of Nations: Theory and Evidence

Leonard N. Stern School of Business Paper No. ISSN 1547-3651

48 Pages Posted: 3 Jun 2007

See all articles by Dalia Marin

Dalia Marin

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Thierry Verdier

Paris School of Economics (PSE); Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2006

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 more decentral 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) 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 econometric evidence which is consistent with the models predictions.

Keywords: international trade with endogenous firm organizations, trade and corporate organization in similar countries, power struggle, in the firm, corporate organization in Austria and Germany, empirical test of the theory of the firm

JEL Classification: F12, F14, L22, D23

Suggested Citation

Marin, Dalia and Verdier, Thierry, Corporate Hierarchies and the Size of Nations: Theory and Evidence (November 2006). Leonard N. Stern School of Business Paper No. ISSN 1547-3651, Available at SSRN: https://ssrn.com/abstract=990008 or http://dx.doi.org/10.2139/ssrn.990008

Dalia Marin (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

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Munich, D-80539
Germany
+49 89 2180 2446 (Phone)
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Thierry Verdier

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014
France

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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