Centralization and Firm Performance: New Evidence on the Role of Firm Size

Abstract

Centralization has been regarded as an important factor in corporate governance in the academic and business communities. Although several studies have examined the relationship between centralization and firm performance, the conclusions remain mixed. We extend existing research by introducing firm size as a threshold variable into our model to explicate the complicated effects of centralization on firm performance. We found that a high degree of centralization can promote firm performance significantly in small- and medium-scale firms while inhibiting firm performance in large-scale firms. Using heterogeneity analysis, we found that centralization has a more significant positive impact on firm performance in private firms, family firms, and manufacturing firms than others. Furthermore, we explored the factors influencing the nexus between centralization and firm performance and found that centralization can improve the level of cost allocation management and technology innovation, driving firm performance but possibly resulting in overinvestment, which is harmful to firm performance. Our research provides guidance for companies to establish a decision-making power allocation that meets their scale-appropriate development needs.

Innovation, advertising, personal selling, and sustainability in the industries massively benefited from major public health emergencies: paradoxical evidence from China

“…In the studies about firm size, on one hand, Kuncová et al ( 56 ), Ibhagui & Olokoyo ( 57 ) and Mubeen et al ( 58 ) found that large firms outperformed small firms in profitability, and firm size can positively moderate the relationship between factors such as financial leverage, product market competition and firm investment performance. On the other hand, Dhawan ( 59 ) and Fan’s et al ( 60 ) studies found that firm size is negatively correlated with company performance. Similarly, there may also be a positive or negative relationship between financial leverage and profitability.…”

An Analysis of the Long‐Term Sustainability of the Large Companies Included in the Original Standard and Poor’s 500 Index

“…is issue also connects with the problem of the use of qualitative variables, which have been largely ignored in many studies on business quality [152,153] and which could provide a good explanation about the endurance of the firms over time. e uncertainty, the instability of certain states, the capacity of dynamism and innovation, the complexity of the governance structure, or the competition degree are factors considered in the eory of Business Organisation [154][155][156][157] as these factors have implications in the longevity of the companies and should yet be modelled in integrated studies. Table 1 summarises all the main explanatory approaches to the business survival theories in the literature, and the most representative papers in each case.…”