Globalization and Internal Corporate Organization: Evidence from Japanese Firms

Abstract

Recent years have witnessed that firm hierarchies are becoming flatter amid globalization. Span of control ( Span ) has broadened and the number of levels ( Layer ) within firms has declined. Motivated by these changes in the world, international trade theory has recently incorporated a rich organizational model into trade and heterogeneous firm contexts. However, empirical evidence for this theory has been so far limited because of the constrained data availability. This paper fills a part of this gap by exploiting a unique firm-level organization data in Japan, by which we can ascertain the relationship between a firm’s organization and its characteristics. Globalization, which is measured by the firm’s foreign sales ratio, has a positive link with Span , but has a negative link with Layer . This finding implies that organizational change is one source of learning effects of globalization.