Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • January 2021
  • Article
  • American Economic Journal: Applied Economics

Turbulence, Firm Decentralization and Growth in Bad Times

By: Philippe Aghion, Nicholas Bloom, Brian Lucking, Raffaella Sadun and John Van Reenen
  • Format:Print
ShareBar

Abstract

What is the optimal form of firm organization during “bad times”? We present a model of delegation within the firm to show that the effect is ambiguous. The greater turbulence following macro shocks may benefit decentralized firms because the value of local information increases (the “localist” view). On the other hand, the need to make tough decisions may favor centralized firms (the “centralist” view). Using two large micro datasets on firm decentralization from ten OECD countries and U.S. administrative data, we find that firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession outperformed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. Using direct measures of turbulence based on product churn and stock market volatility, we show that the localist mechanism dominates. This conclusion is robust to alternative explanations such as managerial fears of bankruptcy and changing coordination costs. Although delegation is better suited to some environments than others, countries with more decentralized firms (like the U.S.) weathered the 2008–2009 Great Recession better: these organizational differences account for about 15% of international differences in post-crisis GDP growth.

Keywords

Decentralization; Growth; Turbulence; Great Recession; Organizational Design; System Shocks; Economic Growth; Performance

Citation

Aghion, Philippe, Nicholas Bloom, Brian Lucking, Raffaella Sadun, and John Van Reenen. "Turbulence, Firm Decentralization and Growth in Bad Times." American Economic Journal: Applied Economics 13, no. 1 (January 2021): 133–169.
  • Find it at Harvard
  • Read Now

About The Author

Raffaella Sadun

Strategy
→More Publications

More from the Authors

    • 2021
    • Faculty Research

    Working from Home during COVID-19: Evidence from Time-Use Studies

    By: Thomaz Teodorovicz, Raffaella Sadun, Andrew L. Kun and Orit Shaer
    • 2021
    • Faculty Research

    The World Management Survey at 18: Lessons and the Way Forward

    By: Daniela Scur, Raffaella Sadun, John Van Reenen, Renata Lemos and Nicholas Bloom
    • Harvard Business Review Digital Articles

    Where Did the Commute Time Go?

    By: Andrew Kun, Raffaella Sadun, Orit Shaer and Thomaz Teodorovicz
More from the Authors
  • Working from Home during COVID-19: Evidence from Time-Use Studies By: Thomaz Teodorovicz, Raffaella Sadun, Andrew L. Kun and Orit Shaer
  • The World Management Survey at 18: Lessons and the Way Forward By: Daniela Scur, Raffaella Sadun, John Van Reenen, Renata Lemos and Nicholas Bloom
  • Where Did the Commute Time Go? By: Andrew Kun, Raffaella Sadun, Orit Shaer and Thomaz Teodorovicz
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College