Corporate hierarchies in markets: The effects of structure and strategy on organizational survival

Although corporate hierarchies are a dominant organizational form in U.S. industry, their effects on the survival of component business units remains relatively understudied. We examine the effects of market diversification and vertical integration at the business-unit level and industry diversification at the corporate level on business-unit survival in a sample of independent and subunit higher education publishing firms from 1958 to 1990. We find that market diversification at the business-unit level increases the exit rate for both independent and subunit businesses, while we find partial support for the hypothesis that industry diversification at the corporate level decreases the exit rate for subunit businesses. For independent and subunit businesses, exit rates are lower for business units with vertically integrated marketing and distribution than for those with contractual relationships. The effects of corporate hierarchies on the survival of business units are contingent on the specialization of information processing at both the business-unit and corporate-parent levels. The results suggest a view of corporate hierarchies as information-processing systems in which market specialization has long term benefits for firms in industries characterized by market intermediation. hi.