Planning ahead or dragging one’s feet? Organizational structure and high-growth events

Abstract

Abstract: We focus on the topic of high-growth firms (HGFs) that add hierarchical layers around the time of the high-growth (HG) episode. Competing theories highlight how either firms plan ahead and invest proactively in organizational infrastructure, or that firms “drag their feet” and respond only when the setting up of new management layers can no longer be avoided. Drawing on rich Brazilian employer-employee census micro-data (RAIS, 2003–2019) with over 3 million observations in our final sample, our difference-in-differences estimations appear somewhere between the two theoretical benchmarks. Firms start adding additional knowledge hierarchies from the start of the growth period, and firms stop adding when the growth period is over. Small firms (fewer than 50 employees) have a higher likelihood of introducing a new hierarchical layer. Anticipation effects (adding hierarchical layers before the first year of the growth episode) are almost completely absent. In growing firms, the share of managers decreases during the HG period and hits a trough at the end of the HG period before rising (presumably as HG firms are pressured to hire more managers).