Organizational dispersion and economic performance in multi-unit firms

This paper examines how organizational dispersion affects the economic performance of business units in multi-unit firms. When expanding operations, firms must balance the advantages of close oversight and control with the need to place units in locations that provide strategic resources or better access to markets. While managers are expected to weigh these trade-offs carefully, they may underestimate the challenges of managing and coordinating dispersed units, which can lead to inefficiencies that negatively impact performance. Using a large sample of 40,946 European business groups controlling approximately 107,000 subsidiaries, we analyze the factors that influence subsidiary performance in the context of organizational dispersion. Our findings suggest that organizational dispersion, measured as spatial distance between the headquarter and its business units, has a negative impact on subsidiary performance. Finally, we explore some potential mechanisms behind these effects.