Toward an integrated theory of the firm: the interplay between internal organization and vertical integration

Brahm, F and Tarzijan, J (2016) Toward an integrated theory of the firm: the interplay between internal organization and vertical integration. Strategic Management Journal, 37 (12). pp. 2481-2502. ISSN 0143-2095 OPEN ACCESS

Abstract

Two central issues in strategic management are the determination of a firm's internal delegation and its vertical boundaries. Despite the importance of these issues, there is scant analysis concerning their interaction. Using a comprehensive database of the construction industry, we show that vertical integration positively influences the centralization decision and that the main mechanism driving this relationship is an improvement in the hierarchically coordinated adaptation of firm activities when complexity and uncertainty are high. We also observe that centralization is negatively related to the extent of relational contracts between principals and agents, and positively related to an exogenous increase in the cost of employee layoffs. Our results suggest that managers cannot consider firm boundaries and internal organization to be independent decisions.

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Item Type: Article
Subject Areas: Strategy and Entrepreneurship
Subjects: C > Centralised
A > Agencies
Date Deposited: 08 Feb 2019 15:11
Last Modified: 17 Jul 2019 16:47
URI: http://lbsresearch.london.edu/id/eprint/1059
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