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Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis

Henry Ogden Armour and David J. Teece
The Bell Journal of Economics
Vol. 9, No. 1 (Spring, 1978), pp. 106-122
Published by: RAND Corporation
DOI: 10.2307/3003615
Stable URL: http://www.jstor.org/stable/3003615
Page Count: 17
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Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis
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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.

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