Abstract: We study the spatial expansion of banks in response to banking deregulation in the 1980s and 90s. During this period, large banks expanded rapidly, mostly by adding new branches in new locations, while many small banks exited. We document that large banks sorted into the densest markets, but that sorting weakened over time as large banks expanded to more marginal markets in search of locations with a relative abundance of retail deposits. This allowed large banks to reduce their dependence on expensive wholesale funding and grow further. To rationalize these patterns we propose a theory of multi-branch banks that sort into heterogeneous locations. Our theory yields two forms of sorting. First, span-of-control sorting incentivizes top firms to select the largest markets and smaller banks the more marginal ones. Second, mismatch sorting incentivizes banks to locate in more marginal locations, where deposits are abundant relative to loan demand, to better align their deposits and loans and minimize wholesale funding. Together, these two forms of sorting account well for the sorting patterns we document in the data.

Abstract: We study the number, size, and location of a firm’s plants. The firm’s decision balances the benefit of delivering goods and services to customers using multiple plants with the cost of setting up and managing these plants, and the potential for cannibalization that arises as their number increases. Modeling the decisions of heterogeneous firms in an economy with a vast number of widely distinct locations is complex because it involves a large combinatorial problem. Using insights from discrete geometry, we study a tractable limit case of this problem in which these forces operate at a local level. Our analysis delivers predictions on sorting across space for industries with many plants per firm. Compared with less productive firms, productive firms place more plants in dense high-rent locations and place fewer plants in markets with low density and low rents. Controlling for the number of plants, productive firms also operate larger plants than those operated by less productive firms. We present evidence consistent with these and several other predictions using U.S. establishment-level data.

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Replication Files

Abstract: US firms in service industries increasingly operate in more local markets. Employment, sales, and spending on fixed costs have increased rapidly in these industries. These changes have favored top firms, leading to increasing national concentration. Top firms in service industries have grown by expanding into new local markets, predominantly small and mid-sized US cities. Market concentration at the local level has decreased in all US cities, particularly in cities that were initially small. These facts are consistent with the availability of new fixed-cost-intensive technologies that yield lower marginal costs in service sectors. The entry of top service firms into new local markets has led to substantial unmeasured productivity growth, particularly in small markets.

Replication Files

Abstract: Using employer-employee matched and firm production quantity and input data for Portuguese firms, we study the endogenous response of productivity to firm reorganizations as measured by changes in the number of management layers. We show that, as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity-based productivity increases by about 6%, while revenue-based productivity drops by around 3%. Such a reorganization makes the firm more productive but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity as well.

Replication Files

Abstract: We study the internal organization of French manufacturing firms. We divide the employees of each firm into “layers” using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. The probability of adding/dropping a layer is positively/negatively correlated with value added. Reorganization, through changes in layers, is essential to understanding how firms grow. firms that expand substantially add layers and pay lower average wages in all preexisting layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all preexisting layers.

Online Appendix

Replication Files

Abstract: We document several empirical regularities regarding the evolution of urban structure in the largest U.S. metropolitan areas over the period 1980–90. These regularities relate to changes in resident population, employment, occupations, as well as the number and size of establishments in different sections of the metropolitan area. We then propose a theory of urban structure that emphasizes the location and internal structure decisions of firms. In particular, firms can decide to locate their headquarters and operation plants in different regions of the city. Given that cities experienced positive population growth throughout the 1980s, we show that firm fragmentation produces the diverse set of facts documented in the article.

Abstract: This paper presents a theory of establishment size dynamics based on the accumulation of industry-specific human capital that simultaneously rationalizes the economy-wide facts on establishment growth rates, exit rates, and size distributions. The theory predicts that establishment growth and net exit rates should decline faster with size, and that the establishment size distribution should have thinner tails, in sectors that use specific human capital less intensively. We establish that there is substantial cross-sector heterogeneity in US establishment size dynamics and distributions, which is well explained by relative factor intensities.

Replication Files