Research Seminar Series on Global Challenges – Anna Gumpert (LMU Munich), 29th October 2020 at 12:15 p.m. (CET)

Global Challenges Seminar Series

Anna Gumpert (LMU Munich) on “Firm organization with multiple establishments” (with Henrike Steimer and Manfred Antoni)jointly organised by the Centro Studi Luca d’Agliano, BAFFI CAREFIN and the Department of Economics, Management and Quantitative Methods (University of Milan) in collaboration with the Dipartimento di Economia, Metodi Quantitativi e Strategie di Impresa (Università Milano Bicocca) and the Dipartimento di Ingegneria Gestionale (Politecnico di Milano). The webinar will be held on Thursday, 29th October 2020 at 12:15 p.m. (CET) via Zoom. Further details on how to connect will be sent in due course.

Abstract

How do geographic frictions affect firm organization? We show theoretically and empirically that geographic frictions increase the use of middle managers in multi-establishment firms. In our model, we assume that a CEO’s time is a resource in limited supply, shared across headquarters and establishments. Geographic frictions increase the costs of accessing the CEO. Hiring middle managers at one establishment substitutes for CEO time, which is reallocated across all establishments. Consequently, geographic frictions between the headquarters and one establishment affect the organization of all establishments of a firm. Our model is consistent with novel facts about multi-establishment firm organization that we document using administrative data from Germany. We exploit the opening of high-speed train routes to show that not only the establishments directly affected by faster travel times but also the other establishments of the firm adjust their organization. Our findings imply that local conditions propagate across space through firm organization.