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Boundary of the firm with endogenous firm structure

Ma, Qing; Wang, Susheng


Assistant Professor

Susheng Wang


We study the boundary of the firm with endogenous firm structure. The firm has two restructuring options: internal restructuring by which the firm centralizes or decentralizes decision making, or external restructuring by which the firm spins off a division. We investigate the firm's restructuring options to determine its boundary based on the optimal firm structure. Our conclusion depends on market uncertainty, market size, market competition, synergy among divisions, and coordination costs. We find that when market uncertainty rises, a decentralized firm (D-firm) conducts internal restructuring, whereas a centralized firm (C-firm) conducts external restructuring. A D-firm chooses to stay put when market competition intensifies, whereas a C-firm chooses to conduct either internal or external restructuring depending on whether a positive synergy exists among its divisions.


Ma, Q., & Wang, S. (2022). Boundary of the firm with endogenous firm structure. Journal of Financial Research, 45(4), 797-816.

Journal Article Type Article
Acceptance Date Jul 11, 2022
Online Publication Date Aug 4, 2022
Publication Date Dec 8, 2022
Deposit Date Jul 27, 2022
Publicly Available Date Aug 5, 2024
Journal Journal of Financial Research
Print ISSN 0270-2592
Electronic ISSN 1475-6803
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 45
Issue 4
Pages 797-816
Keywords Finance; Accounting
Public URL
Publisher URL
Additional Information This is the peer reviewed version of the following article: Ma, Q. and Wang, S. (2022), Boundary of the firm with endogenous firm structure. The Journal of Financial Research. Accepted Author Manuscript, which has been published in final form at


This file is under embargo until Aug 5, 2024 due to copyright restrictions.

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