Never Waste a Good Crisis? Growth and Decentralization in the Great Recession Preliminary

We argue that decentralization is particularly beneficial to firm performance in “bad times”. We present a model where bad times increase the importance of rapid action, and improve the alignment of incentives of managers within firms. We test this idea exploiting the 2008-2009 Great Recession using firm-level cross country panel data combined with our survey data on firm organization. We find that: (i) decentralization is positively correlated with sales growth and with TFP growth, particularly in times of crisis; (ii) the correlation between decentralization and performance in crisis times is stronger when the congruence between principals and agents is weaker, e.g. (a) in firms where the CEO is o↵site; (b) where the plant manager has shorter tenure and (c) where the level of generalized trust in the region is lower; (iii) the positive e↵ects of decentralization in times of crisis is significantly larger in firms with leverage above the median. JEL No. O31, O32, O33, F23