Working Paper: NBER ID: w17846
Authors: Maria Guadalupe; Hongyi Li; Julie Wulf
Abstract: This paper shows that top management structures in large US firms radically changed since the mid-1980s. While the number of managers reporting directly to the CEO doubled, the growth was driven primarily by functional managers rather than general managers. Using panel data on senior management positions, we explore the relationship between changes in executive team composition, firm diversification, and IT investments--which arguably alter returns to exploiting synergies through corporate-wide coordination by functional managers in headquarters. We find that the number of functional managers closer to the product ("product" functions i.e., marketing, R&D) increase as firms focus their businesses, while the number of functional managers farther from the product ("administrative" functions i.e., finance, law, HR) increase with IT investments. Finally, we show that general manager pay decreases as functional managers join the executive team suggesting a shift in activities from general to functional managers--a phenomenon we term "functional centralization."
Keywords: Top Management Teams; Functional Centralization; Firm Diversification; IT Investments
JEL Codes: D22; J31; L2; M12; M5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| narrowing firm focus (L25) | increase number of product functional managers (M11) |
| narrowing firm focus (L25) | no significant effect on number of administrative functional managers (M54) |
| increase in administrative functional managers (M54) | increase in IT investments (O39) |
| IT investments (G31) | centralization of administrative functions (H77) |
| IT investments (G31) | no correlation with number of product functional managers (L23) |
| increase in functional managers (M54) | decrease in pay of general managers (M12) |