Toward an integrated theory of the firm: The interplay between internal organization and vertical integration

Tarziján, J., Brahm, F.

2016 | Tarziján, J., Brahm, F.

Strategic Management Journal

IF-2015 : 3,380 |

AI-2015 : 2,944

Toward an integrated theory of the firm: The interplay between internal organization and vertical integration


Two central issues in strategic management are the determination of a rm’s
internal delegation and its vertical boundaries. Despite the importance of these issues, there is
scant analysis concerning their interaction. Using a comprehensive database of the construction
industry, we show that vertical integration positively inuences the centralization decision and
that the main mechanism driving this relationship is an improvement in the hierarchically coor-
dinated adaptation of rm activities when complexity and uncertainty are high. We also observe
that centralization is negatively related to the extent of relational contracts between principals
and agents, and positively related to an exogenous increase in the cost of employee layoffs. Our
results suggest that managers cannot consider rm boundaries and internal organization to be
independent decisions.


Two central issues in strategic management are the determination of a rm’s
internal delegation and its vertical boundaries. Despite the importance of these issues, there is
scant analysis concerning their interaction. Using a comprehensive database of the construction
industry, we show that vertical integration positively inuences the centralization decision and
that the main mechanism driving this relationship is an improvement in the hierarchically coor-
dinated adaptation of rm activities when complexity and uncertainty are high. We also observe
that centralization is negatively related to the extent of relational contracts between principals
and agents, and positively related to an exogenous increase in the cost of employee layoffs. Our
results suggest that managers cannot consider rm boundaries and internal organization to be
independent decisions.


Publicado en: Strategic Management Journal

Artículo: ISI , Estrategia