Interdependence and performance: A natural experiment in firm scope

Abstract

This the paper predictions shows of how the interdependencies theory using detailed influence microdata performance on every following Peruvian a reduction fishing firm in firm before scope. and We aftertest a regulatory ban on mackerel fishing, finding that a reduction in the scope of activities causes the productivity of firms' legacy anchovy operations to fall sharply, before recovering in the long run. The results are most pronounced for firms with the strongest interdependencies between activities. Moreover, we find evidence that the persistence of the productivity decline is explicitly tied to a failure to adapt quickly following the ban. Consistent with our conceptual characterization, the evidence suggests that interdependencies between activities simultaneously create benefits as well as costs, but that costs are more persistent when the firm reduces its scope of activities.