Testing Organizational Economics Theories of Vertical Integration

Lajili, Kaouthar; Madunic, Marko; Mahoney, Joseph T.

doi:10.1016/s1479-8387(07)04012-x

Cited by 34 publications

(29 citation statements)

References 201 publications

(178 reference statements)

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“…Factors/consequences of market frictions the likelihood of an exchange partner acting opportunistically by posing economic hold-up problems for other partners (Klein, Crawford, and Alchian, 1978). The research literature largely corroborates the prediction that higher transaction costs due to opportunism and asset specificity result in higher economic safeguards such as internalization to mitigate contractual hazards, and thereby minimize cost (Lajili, Madunic, and Mahoney, 2007;Oxley, 1997;Shelanski and Klein, 1995).…”

Section: Market Inefficiencymentioning

confidence: 62%

Market frictions as building blocks of an organizational economics approach to strategic management

Mahoney

Qian

2013

Strategic Management Journal

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148

100

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Section: Market Inefficiencymentioning

confidence: 62%

Market frictions as building blocks of an organizational economics approach to strategic management

Mahoney

Qian

2013

Strategic Management Journal

Self Cite

148

100

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“…This would explain the absence of additive agency costs as well as the lower performance of VI for these firms. From the managerial entrenchment theory perspective, one possible explanation is that cooperatives do not invest in human capital because of the agency costs this would imply (Lajiji et al., ). Indeed, learning is a specific asset and complexity management requires managerial discretion.…”

Section: Resultsmentioning

confidence: 99%

Agency costs of vertical integration—the case of family firms, investor‐owned firms and cooperatives in the French wine industry

Cadot

2015

Agricultural Economics

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Vertical integration theory has long suggested internal costs related to changes in incentives due to vertical integration, which means that vertical integration may lead to agency costs. In this work, we specify the notion of agency costs of vertical integration and extend Ang et al. (2000)'s measurement of agency costs to provide an empirical assessment of these costs in the French wine industry. Our econometric analysis finds that the agency costs of vertical integration may reach 2-3% of sales. It also showed that operating expenses of vertical integration are lower for cooperatives than for other firms, while vertical integration is less rewarding for them. This raises questions on the relation between agency costs in cooperatives and their performance.JEL classifications: G320, D230, Q130

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“…Another widely used measurement approach of vertical integration is the inputoutput approach which utilizes national input-output tables and has been implemented in a number of studies (see Lajili et al (2007)). Maddigan's (1981) Vertical Industry Connection (VIC) index was one of the first measures of this category.…”

Section: Measurement Of Vertical Integrationmentioning

confidence: 99%

Vertical (Dis‑)Integration and Firm Performance: A Management Paradigm Revisited

Kaiser

Obermaier

2020

Schmalenbach Bus Rev

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Vertical disintegration in manufacturing industries has been an increasing trend since the 1990s in many countries. According to a prevailing management paradigm of focusing on core competencies, firms should have vertically disintegrated (i.e. outsourced non-core competencies) to achieve cost savings, enhance competitiveness and improve firm performance. In line with this management paradigm, most empirical studies therefore hypothesized a negative linear relationship between the degree of vertical integration and firm performance, expecting performance to rise when vertical integration decreases.In contrast to previous studies, finding mixed results, we assume an inverted u-shaped relationship, theoretically based on transaction cost economics and the resource-based view of the firm, and by considering advantages and disadvantages of vertical integration, with an optimal level of vertical integration, where firms with a too low degree of vertical integration could achieve higher performance by vertical integration, while firms with too broad vertical integration could achieve higher performance by vertical disintegration.With respect to our data based on a sample of 434 German manufacturing firms between 1993 and 2013 we find a decreasing trend of vertical integration over time. Applying multiple regression analysis, our findings suggest a positive, but diminishing relationship between the degree of vertical integration and financial performance. These two findings describe a paradox of vertical disintegration. The decreasing trend mainly emerges because lower performing firms outsourced their

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Testing Organizational Economics Theories of Vertical Integration

Cited by 34 publications

References 201 publications

Market frictions as building blocks of an organizational economics approach to strategic management

Market frictions as building blocks of an organizational economics approach to strategic management

Agency costs of vertical integration—the case of family firms, investor‐owned firms and cooperatives in the French wine industry

Vertical (Dis‑)Integration and Firm Performance: A Management Paradigm Revisited

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