Abstract
The roles of structure in corporate strategy are a central issue of strategic management. However, systematic evidence on this topic is seriously lacking. Based on a panel of Japanese firms, we contribute to filling the void by studying the causes and consequences of the variation of headquarters’ size across firms. Consistent with the view that firms enlarge headquarters to profit from operating synergy based on inter-divisional resource sharing, we find that firms with higher R&D and advertising intensities and firms with a more related business portfolio have larger headquarters. However, the size of headquarters is inversely associated with internal capital market efficiency, suggesting that large headquarters handicap firms in profiting from financial synergy. These results lend credence to the notion that firms cannot be ambidextrous in profiting from diversification because of distinct structures required for operating and financial synergies.
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