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Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed Rail

Author

Listed:
  • P. CHARNOZ

    (Insee, Crest et Université Paris-Sud)

  • C. LELARGE

    (Insee)

  • C. TREVIEN

    (Insee, Crest et Sciences-Po)

Abstract
We document the impact of travel time between affiliates and headquarters of geographically dispersed corporate groups on the management of such business organizations. Theory suggests that the easier circulation of managers might facilitate the transmission of information between production plants and headquarters, thus fostering growth and functional specialization (on production activities) at remote affiliates and decreasing operational costs at the group level. We test these predictions on the population of French corporate groups, using the expansion of the High Speed Rail network as an arguably exogenous shock on internal travel times. Results are most pronounced in the service industries, where information to be transmitted is arguably softer (Petersen and Rajan, 2002): we estimate that HSR induced the creation of one production job for the average affiliate in these industries (against 0.2 job in retail, trade or manufacturing industries), and the shift of around one managerial job from affiliate to HQ. These results are robust to alternative identification strategies addressing the problem of the endogenous placement of the HSR infrastructure (use of high-dimensional fixed effects controlling for local and affiliate-level shocks as in Giroud, 2013 and evidence from un-realized lines as in Donaldson, 2014). At the group level, descriptive regressions suggest that the impact on the operational profit margin is around 0.5 percentage points in most industries.

Suggested Citation

  • P. Charnoz & C. Lelarge & C. Trevien, 2016. "Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed Rail," Documents de Travail de l'Insee - INSEE Working Papers g2016-02, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2016-02
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zrc0z/f1.pdf
    File Function: Document de travail de la DESE numéro G2016-02
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    Cited by:

    1. P. Charnoz & C. Lelarge & C. Trevien, 2016. "Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed Rail," Documents de Travail de l'Insee - INSEE Working Papers g2016-02, Institut National de la Statistique et des Etudes Economiques.
    2. Lelarge, Claire & Charnoz, Pauline & Trevien, Corentin, 2018. "Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed," CEPR Discussion Papers 12585, C.E.P.R. Discussion Papers.
    3. Gokan, Toshitaka & Kichko, Sergey & Thisse, Jacques-François, 2019. "How do trade and communication costs shape the spatial organization of firms?," Journal of Urban Economics, Elsevier, vol. 113(C).
    4. Stef Proost & Jacques-François Thisse, 2019. "What Can Be Learned from Spatial Economics?," Journal of Economic Literature, American Economic Association, vol. 57(3), pages 575-643, September.

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    More about this item

    Keywords

    Communication costs; headquarters; firm organization; public infrastructure; high-speed rail;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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