Bloom, Nick, Sadun, Raffaella and Van Reenen, John (2012) The organization of firms across countries. The Quarterly Journal of Economics, 127 (4). pp. 1663-1705. ISSN 0033-5533
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.
Actions (login required)
|Record administration - authorised staff only|