Explore the vast range of titles available.

This paper examines the impact of coordination costs and organizational rigidity on the returns to diversification. The central thesis is that coordination costs offset economies of scope, while organizational rigidity increases coordination costs, further constraining economies of scope. The empirical tests of this proposition identify the effects of coordination and organizational rigidity costs on business unit and firm productivity, using novel data from the Economic Census on taxicab and limousine firms. The key results show that coordination and organizational rigidity costs are economically and statistically significant, while organizational rigidity itself accounts for a 16 percent decrease in paid ride-miles per taxicab in incumbent diver sifters, controlling for the other costs and benefits of diversification and incumbency. The findings suggest that coordination costs, in general, and organizational rigidity costs, in particular, limit the scope of the firm.

This paper studies how firms reorganize following diversification, proposing that firms use outsourcing, or vertical disintegration, to manage diseconomies of scope. We also consider the origins of scope diseconomies, showing how different underlying mechanisms generate contrasting predictions about the link between within-firm task heterogeneity and the incentive to outsource following diversification. We test these propositions using microdata on taxicab and limousine fleets from the Economic Census. The results show that taxicab firms outsource, by shifting the composition of their fleets toward owner-operator drivers, when they diversify into the limousine business. The magnitude of the shift toward driver ownership is larger in less urban markets, where the tasks performed by taxicab and limousine drivers are more similar. These findings suggest that (1) firms use outsourcing to manage diseconomies of scope at a particular point in the value chain and (2) interagent conflicts can be an important source of scope diseconomies.

Research Summary: We develop a framework for understanding how and when membership in a conglomerate affects a subsidiary's creativity. Focusing on \"sectoral\" conglomerates with several subsidiaries in the same industry, we explain that the effect has two components: an imprinting effect at the time of affiliation, and a concurrent effect from ongoing interactions with other subsidiaries. In the context of the high-end fashion industry, we find that a subsidiary's creativity increases when it joins a conglomerate with either very low or high creativity. We interpret this as an imprinting effect of the environment inside a conglomerate on how effectively a subsidiary is integrated. Furthermore, over time, the creativity of a subsidiary increases with the creativity of other subsidiaries. The results provide evidence of creativity \"spillovers\" within conglomerates. Managerial Summary: We examine the role that fashion conglomerates like LVMH or Kering play in the creativity of their subsidiaries. These conglomerates create value through internal transfers of operational and creative practices. Some conglomerates are better at integrating subsidiaries after acquisition than the others: it seems that the better integrators are conglomerates that either have other creative subsidiaries or subsidiaries that lack creativity. Furthermore, conglomerates with other creative subsidiaries continuously improve the creativity of their member firms, probably due to their ability to transfer high-quality internal practices.

Research Summary This paper investigates the costs of corporate scope reduction (“refocusing”). Using data on hedge fund firms that were quasi‐exogenously driven to close funds during the 2007–2009 financial crisis, we find evidence that refocusing imposes meaningful economic costs on firms. To better understand the mechanisms behind this result, we disaggregate refocusing costs along two dimensions: the degree of relatedness between the business that was closed and its sister divisions, and the duration of time over which the costs persist. The results suggest that refocusing imposes meaningful, yet transitory, adjustment costs on firms, and destroys synergies when related businesses are closed, creating more persistent costs. Accordingly, our work contributes to the corporate strategy literature by characterizing and evaluating the costs of refocusing. Managerial Summary We examine the costs of “refocusing,” defined as multi‐business companies reducing the number of businesses they operate. Using data on hedge funds that were driven to close one or more of their funds during the 2007–2009 financial crisis, we show that refocusing imposes meaningful economic costs on companies. We find that refocusing costs are larger and persist for longer when the business that was closed is more closely related to other businesses within the company. Together, our results suggest that refocusing may destroy synergies and be difficult for organizations to manage. This implies that managers should take steps to mitigate the dislocations that may occur as the refocusing process unfolds, as well as the long‐run persistence in synergy destruction when more‐related businesses are closed.

We develop a simple model that links the adoption of a productivity-enhancing technology to increased vertical integration and a less skilled workforce. We test the model’s key prediction using novel microdata on vehicle ownership patterns from the Economic Census during a period when computerized dispatching systems were first adopted by taxicab firms. Controlling for time-invariant firm-specific effects, firms increase the proportion of taxicabs under fleet ownership by 12% when they adopt new computerized dispatching systems. An instrumental variables analysis suggests that the link between dispatching technology and vertical integration is causal. These findings suggest that increasing a firm’s productivity can lead to increased vertical integration, even in the absence of asset specificity.

This paper studies inherited agglomeration effects, which we define as human capital that managers acquire while working in an industry hub that may be transferred to a spinoff. We test for inherited agglomeration effects in the hedge fund industry and find that hedge fund managers who previously worked in New York and London outperform their peers by about one percent per year. The results are driven by managers who worked in investment management positions previously, and are at least as large as traditional agglomeration effects that arise from being located in an industry hub contemporaneously. The evidence suggests that inherited agglomeration effects are an important, but as yet overlooked, factor influencing the performance of new firms.

We present a new mechanism by which prior employment can influence transitions to other firms. We propose that some employees divert effort toward unproductive activities to learn about their own fitness for alternative employment. Based on the results of this costly learning experience, or “experiment,” some employees will transition into other firms or launch their own ventures, whereas others will remain at the incumbent firm. We develop a theoretical model to explicate these propositions and test them using four data sets from the mutual fund and hedge fund industries. We find evidence that managers who engage in excessive risk taking at mutual funds are subsequently more likely to join or start hedge funds, although there is little evidence that this risk taking is intended to signal quality to outside observers. Taken together, our findings suggest that learning about one’s own fitness for alternative employment, through experimentation on the job, is an important mechanism for enabling employee mobility. This paper was accepted by Lee Fleming, entrepreneurship and innovation .

We present a general framework for understanding why firms are slow to make major strategic changes in a wide range of empirical settings. We then apply this framework to investigate, more specifically, the relationship between firm age and scope in hedge funds. Our empirical analyses demonstrate that younger hedge funds outperform older hedge funds both before and after the launch of a new fund. Based on our framework, these results suggest that age-based rigidity in hedge funds is more attributable to internal political frictions that influence project selection than to constraints associated with exchange partners or implementation costs. We conclude by discussing how our framework can be used to identify the dominant source of rigidity in other contexts.

We formalize the idea that when managers require external investment to expand, higher-skilled firms will be more likely to diversify in equilibrium, even though managers can exploit asymmetric information about their ability to raise capital from investors. We exploit the timing of new fund launches in the hedge fund industry to distinguish between agency and capability effects in firm product diversification decisions, using a large survivor-bias-free panel data set on the hedge fund industry from 1994 to 2006. Empirically we show that diversifying firms' excess returns are high relative to those of other firms prior to diversification and fall within firm following diversification, but are six basis points higher per month per unit of risk ex post compared to a matched sample of focused firms. The evidence suggests that managers exploit asymmetric information about their own ability to time diversification decisions; yet, the discipline of markets ensures that better firms diversify, on average. The results provide large-sample empirical evidence that agency effects and firm capabilities jointly influence diversification decisions. This paper was accepted by Bruno Cassiman, business strategy.

This research examines the relationship between organization and firm performance in a series of three papers using the U.S. taxicab industry as the empirical context for the analyses. I focus, in particular, on three features of organization that are of great importance to economists and management scholars: diversification, asset ownership and technology adoption. Performance is measured in terms of total factor productivity. Each paper examines an organizational economics research question that relates features of firm organization to firm performance. The central theme running throughout is that organizations are interrelated bundles of contracts and routines such that shocks to one aspect of the organization lead to changes along other dimensions of the firm. Understanding why organizational changes are interrelated and how such changes influence subsequent firm performance is of great importance to scholars and practitioners alike. This body of research makes three novel contributions to organizational economics. First, I demonstrate that diversification is costly in the sense that it erodes incumbent firms' competitive advantage versus start-ups, because diversification erodes the value of a firm's stock of tacit knowledge by altering the firm's routines. Second, I show that while diversification leads to costly organizational change the organizational adaptations firms make in response to diversification are necessary in the sense that they are productivity enhancing. Finally, this research connects vertical integration decisions, technology adoption and productivity using a transaction cost economics perspective that underscores the importance of interrelationships in the firms' nexus of contracts. The taxicab industry is particularly well suited for studying diversification, asset ownership, technology adoption and productivity questions. Because the taxicab industry is a geographically segmented business the nationwide taxicab industry is actually a collection of hundreds of independent city-level markets, providing considerable variation to identify the effects of interest. I exploit the fact that firms face regulated prices in their local markets to develop a precise measure of firm performance. The key organizational features studied are also measurable at an unusual level of detail. Moreover, horizontal integration between taxis and limousines changed dramatically during the sample period due to widespread regulatory changes, creating a quasi-natural experiment in lateral diversification.