Corporate Hierarchy Preliminary and incomplete: please do not cite or circulate. Seminar

Department: Finance

Speaker: Michael Ewens (Columbia)

Room: T117

Corporate Hierarchy
Preliminary and incomplete: please do not cite or circulate

Michael Ewens and Xavier Giroud
November 2024

Abstract

We introduce a novel measure of corporate hierarchies for over 2,800 U.S. public firms. This measure is obtained from online resumes of 16 million employees and a network estimation technique that allows us to identify hierarchical layers. Equipped with this measure, we document several facts about corporate hierarchies. Firms have on average ten hierarchical layers and a pyramidal organizational structure. More hierarchical firms have a more educated workforce, higher internal promotion rates, and longer employee tenure. Their operating performance is higher, but they face higher administrative costs.They are more active acquirers and produce more patents, but not higher-quality patents. They exhibit lower stock return volatility and more stable cash flows. We also examine how
companies adjust their hierarchies in response to demand and knowledge shocks. We find that biotech companies increased their number of layers following the Covid-19 pandemic, while companies flatten their hierarchies following the adoption of artificial intelligence (AI) technologies. These findings are consistent with the theoretical predictions of existing odels of corporate hierarchies.