Citation

Discussion Paper Details

Please find the details for DP7338 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Organization of Firms Across Countries

Author(s): Nicholas Bloom, Raffaella Sadun and John Van Reenen

Publication Date: June 2009

Keyword(s): decentralization, Rule of Law, social capital, theory of the firm and trust

Programme Area(s): Industrial Organization and Labour Economics

Abstract: We argue that social capital as proxied by regional trust and the Rule of Law can improve aggregate productivity through facilitating greater firm decentralization. We collect original data on the decentralization of investment, hiring, production and sales decisions from Corporate Head Quarters to local plant managers in almost 4,000 firms in the US, Europe and Asia. We find Anglo-Saxon and Northern European firms are much more decentralized than those from Southern Europe and Asia. Trust and the Rule of Law appear to facilitate delegation by improving co-operation, even when we examine "bilateral trust" between the country of origin and location for affiliates of multinational firms. We show that areas with higher trust and stronger rule of law specialize in industries that rely on decentralization and allow more efficient firms to grow in scale. Furthermore, even for firms of a given size and industry, trust and rule of law are associated with more decentralization which fosters higher returns from information technology (we find IT is complementary with decentralization). Finally, we find that non-hierarchical religions and product market competition are also associated with more decentralization. Together these cultural, legal and economic factors account for four-fifths of the cross-country variation in the decentralization of power within firms.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7338

Bibliographic Reference

Bloom, N, Sadun, R and Van Reenen, J. 2009. 'The Organization of Firms Across Countries'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7338