Firms exhibit heterogeneity in size, productivity, and internal structure, and this is true even within the same industry. It has been thought since the time of Adam Smith that a firm's internal structure affects its productivity through the channel of gains from specialization. Our paper provides evidence of a link between an organization's culture — specifically the trust environment — and its internal structure. We show experimentally that exogenously imposed culture endogenously leads to variation in organizational form. We prime trust using past performance from a pilot study and demonstrate that the level of trust within an organization affects division of labor and consequently organizational productivity. This evidence is consistent with a cross-country link between trust and the division of labor that we observe in data from the European Social Survey. Our results point to a mechanism that can help explain existing results on the connection between generalized trust and growth. It also points to an important determinant of a firm's internal structure: corporate culture (of trust).
Meier, Stephan, Matt Stephenson, and Patryk Perkowski. "Culture of Trust and Division of Labor in Non-Hierarchical Teams." Strategic Management Journal (forthcoming).
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