Working Paper: CEPR ID: DP12585
Authors: Pauline Charnoz; Claire Lelarge; Corentin Trevien
Abstract: We take advantage of the expansion of the French High Speed Rail to study the impact of reductions in travel times between headquarters and the affiliated plants of corporate groups on their employment structure and profit margin. We rely on comprehensive administrative data allowing us to provide a large scale, cross-industry test of alternatives theories of firm organization, with a rich set of empirical indicators. We obtain that decreases in communication costs in the form of lower travel times foster the functional specialization of remote affiliates on their production activities. Support activities shrink because of the transfer of the high-skilled managers to headquarters. These organizational rationalizations have a significant but relatively small impact on overall groups' profit. These results hold across all industries but are strongest in the service industries, where the information to be transmitted across sites is arguably softer.
Keywords: communication costs; headquarters; firm organization; public infrastructure; high speed rail
JEL Codes: R30; L22; R40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced travel times (R41) | decreased communication costs (L96) |
| decreased communication costs (L96) | functional specialization of remote affiliates towards production activities (L23) |
| decreased communication costs (L96) | diminished support activities due to transfer of high-skilled managers to headquarters (F29) |
| reduced travel times (R41) | increased functional specialization (L23) |
| reduced travel times (R41) | adjustments in hierarchical structure of affiliates (L22) |
| increased functional specialization (L23) | impact on overall profit margins (F69) |
| reduced travel times (R41) | changes in organizational structure (L22) |