English title: The Organization of Firms Across Countries

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

Language: English

Type: Journal article

Year: 2012

Abstract

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.

Volume: 127

Issue: 4

From page no: 1663

To page no: 1705

Refereed: Yes

DOI: 10.1093/QJE/QJE029

Journal: Quarterly Journal of Economics