Organizational Form, Restructuring, and Productivity: Plant-Level Evidence from Competitive Shocks

Abstract

This paper studies how differences in organizational form affect firms' ability to respond to competitive pressure. Using establishment level data from the U.S. Census and a difference-in-difference specification, I find that relative to focused firms, conglomerate firms more actively restructure during episodes of large import tariff reductions. They restructure to focus on their core competency and to improve productivity. Contrary to conventional wisdom, the internal capital market primarily functions through the extensive margin, with plant opening and closure decisions accounting for most (70%) of the productivity growth differential between conglomerates and standalones post tariff shocks. Finally, the coinsurance benefits likely explain conglomerates' higher propensity to restructure.