THE ORGANIZATION OF FIRMS ACROSS COUNTRIES
Nicholas Blooma , Raffaella Sadunb John Van Reenenc June 3rd 2009
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 fromCorporate 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 ofmultinational 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 withdecentralization). 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 fourfifths of the cross-country variation in the decentralization of power within firms.
JEL No. L2, M2, O32, O33. Keywords: decentralization, trust, Rule of Law, social capital, theory ofthe firm Acknowledgements: Helpful comments on earlier drafts of the paper have come from detailed discussions with Abhijit Banerjee, Bob Gibbons, Avner Greif, Oliver Hart, Bengt Holmstrom, Andrei Shleifer, Julie Wulf, Luigi Zingales and participants at seminars in Duke, the Hague, Harvard, HBS, LBS, Mannheim, MIT, Stanford, Tokyo, UC Merced, USC, Warwick and Wharton. We would like to thank theEconomic and Social Research Council, the Anglo-German Foundation, the Advanced Institute for Management and the Kauffman Foundation for their substantial financial support. We received no funding from the global management consultancy firm we worked with in developing the survey tool. Our partnership with Pedro Castro, Stephen Dorgan and John Dowdy has been particularly important in the developmentof the project. We are very grateful for the endorsement letters from the Banque de France, Bank of Greece, Bank of Japan, Bank of Portugal, Bundesbank, Confederation of Indian Industry, European Central Bank, European Union, Greek Employers Federation, IUI Sweden, Ministero delle Finanze, National Bank of Poland, Peking University, Peoples Bank of China, Polish Treasury, Reserve Bank of India,Shenzhen Development Bank, Sveriges Riksbank, U.K. Treasury and the Warsaw Stock Exchange.
a b c
Stanford, Centre for Economic Performance and NBER Harvard Business School and Centre for Economic Performance London School of Economics, Centre for Economic Performance, NBER and CEPR
Economists have become increasingly aware of the importance of culture oninternational performance (e.g. Guiso, Sapienza and Zingales, 2006). One influential line of research argues that social capital as indicated by measures of trust or more widely, by the Rule of Law, fosters faster growth (e.g. Knack and Keefer, 1997 or La Porta, Lopez-de-Silanes, Shleifer and Vishny, 1998). The mechanisms through which this might happen are not fully understood, however. In this paper wepresent evidence that high social capital in an area increases decentralized decision making within firms. We show that that decentralization favors productivity through supporting a larger equilibrium firm size and is complementary with information technology.
Trust can be seen as a reflection of the congruence of preferences as in Aghion and Tirole (1997), or as a mechanism for obtaining...
Lire le document complet
Veuillez vous inscrire pour avoir accès au document.