Firm Boundaries, Restructuring, and Productivity: Plant-Level Evidence from Competitive Shocks

Abstract

This paper studies the impact of organizational form on firms' responses to competitive pressure. Using establishment level data from the U.S. Census and a difference-in-difference specification, I find that relative to standalones, conglomerate firms are more likely to strategically restructure after significant import tariff reductions, to focus on their core competency, to improve firm productivity, and product market performance. Contrary to conventional wisdom, restructuring accounts for 70% of the productivity growth differential between conglomerates and standalones post tariff shocks. Coinsurance benefits partially explain conglomerates' higher propensity to restructure. My results provide a micro-based explanation for the superior performance of conglomerates during economic downturns.