DP12585 Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed Rail

Author(s): Pauline Charnoz, Claire Lelarge, Corentin Trevien
Publication Date: January 2018
Keyword(s): Communication costs, firm organization, headquarters, high-speed rail, Public Infrastructure
JEL(s): L22, R30, R40
Programme Areas: Labour Economics, Industrial Organization, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12585

We take advantage of the expansion of the French High Speed Rail to study the impact of reductions in travel times between headquarters and the affiliated plants of corporate groups on their employment structure and profit margin. We rely on comprehensive administrative data allowing us to provide a large scale, cross-industry test of alternatives theories of firm organization, with a rich set of empirical indicators. We obtain that decreases in communication costs in the form of lower travel times foster the functional specialization of remote affiliates on their production activities. Support activities shrink because of the transfer of the high-skilled managers to headquarters. These organizational rationalizations have a significant but relatively small impact on overall groups' profit. These results hold across all industries but are strongest in the service industries, where the information to be transmitted across sites is arguably softer.