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Internal organization and firm performance: an analysis of large UK firms under conditions of economic uncertainty

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The relationship between firm performance and internal characteristics is examined in a sample of large UK firms. The way in which organizational form, internal control mechanisms and transitional costs affect profitability is examined. Performance is measured relative to the industry average with firms earning in excess of this being identified as being profit driven. A sensitivity analysis is undertaken using two and three times industry average profits as alternative dependent variables. Logit analysis was used to estimate the relationships. It was found that organisational form had no significant effect on profitability. The separation of decision management from decision control increased the probability of earning more than twice industry average profits. However, for firms which had undertaken a structural reorganization within the three previous years the probability of earning more than twice industry average profits is reduced. It was also found that firms which had a majority of executive directors were more likely to earn above industry average profits. None of the models analysed was able to explain the presence of profits in excess of three times the industry average, a result which has implications for antitrust policy.
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Document Type: Research Article

Publication date: 1996-04-01

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