Measuring and Explaining Organizational Practices across Firms and Countries

Firm organization is affected by structural characteristics of the firm’s environment such as competition. However, successful informal delegation to a manager by a CEO will depend on the ability to sustain co-operation in a repeated game: the co-operative equilibrium will be more easily sustained if the parties have greater trust. To explore this hypothesis we use an innovative survey tool to collect organizational practice data from over 3,500 medium sized firms across 12 countries in the U.S., Europe and Asia. We find robust evidence that firms located in regions with higher levels of trust (“social capital”) are characterized by greater decentralization, even after we control for country dummies. Consistent with our model, such firms are also more likely to outsource. If decentralization is complementary with information technology, low trust countries (like France) may benefit less from an era of rapid technological change than higher trust countries like Sweden and the US. JEL No. L2, M2, O32, O33.