Strategy and structure in interaction: What determines the boundaries of the firm?

This paper analyzes empirically the boundaries of the firm based on Williamson's perspective on what determines firm size. It uses firm performance (risk-adjusted profitability and growth) as dependent variable; and firm organization, diseconomies of scale (atmospheric consequences, bureaucratic insularity, incentive limits, and communication distortion), economies of scale, and asset specificity as independent variables in a structural equation model. Data were collected from the 784 largest US manufacturing firms in 1998. The results confirm Williamson's framework and show that strategy and structure interact concurrently to determine the boundary of the firm.