Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis
Volume: Volume 9, No. 1
Issue: Spring 1978
Pages: pp. 106-122
Authors: Henry Ogden Armour and David J. Teece
Title: Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis
Abstract: This paper empirically investigates the proposition that the organization and operation of the large enterprise along "M-form" multidivisional lines favors goal pursuit and least-cost behavior more nearly associated with the neoclassical profit maximization hypothesis than a number of alternative organizational forms. Using a sample of petroleum firms during the period 1955-1973, a positive relationship between M-form structure and profitability is observed during the period in which the M-form innovation was being diffused. This relationship is no longer observed once an organizational form equilibrium is achieved. The results provide support for the "Markets and Hierarchies" paradigm, but additional studies are needed to affirm the generality of the finding.
JEL Classification
Goals and Objectives of Firms (5140)
Market Structure: Industrial Organization and Corporate Strategy (6110)
Industry Studies Manufacturing Chemicals, Drugs, Plastics, Ceramics, Glass, Cement, and Rubber (6315)