The organization of firms across countries

Bloom, Nick, Sadun, Raffaella and Van Reenen, John ORCID: 0000-0001-9153-2907 (2012) The organization of firms across countries. Quarterly Journal of Economics, 127 (4). pp. 1663-1705. ISSN 0033-5533

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Abstract

We argue that social capital as proxied by trust increases aggregate productivity by affecting the organization of firms. To do this we collect new data on the decentralization of investment, hiring, production, and sales decisions from Corporate Headquarters to local plant managers in almost 4,000 firms in the United States, Europe, and Asia. We find that firms headquartered in high trust regions are significantly more likely to decentralize. To help identify causal effects, we look within multinational firms, and show that higher levels of bilateral trust between the multinational’s country of origin and subsidiary’s country of location increases decentralization, even after instrumenting trust using religious similarities between the countries. Finally, we show evidence suggesting that trust raises aggregate productivity by facilitating reallocation between firms and allowing more efficient firms to grow, as CEOs can decentralize more decisions.

Item Type:	Article
Official URL:	http://qje.oxfordjournals.org/
Additional Information:	© 2012 The Authors
Divisions:	Economics Centre for Economic Performance
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior M - Business Administration and Business Economics; Marketing; Accounting > M2 - Business Economics O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes
Date Deposited:	17 Oct 2012 09:20
Last Modified:	20 Nov 2024 19:09
URI:	http://eprints.lse.ac.uk/id/eprint/46862

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