Empirical Literature of the Firm

Empirical research in the theory of the firm investigates how firms draw their boundaries, structure their internal organization, and choose between markets and hierarchies. Transaction-cost economics has played a central role, with evidence supporting its core claim: transactions involving high asset specificity, uncertainty, or frequency are more likely to be coordinated through vertical integration or long-term contracts. Econometric studies have used firm- and industry-level data to test whether transaction attributes predict governance choices, often finding correlations consistent with theory. Yet, most studies do not distinguish sharply between competing frameworks—such as transaction-cost theory and the property-rights approach—despite their differing implications. The internal organization of firms is less explored; while incentive alignment has been linked to improved performance, questions about hierarchy, structure, and administrative costs remain underexamined. Franchising has attracted empirical attention due to data availability, showing that company-owned stores are preferred when asset specificity is high. Methodological challenges persist, including the difficulty of measuring key constructs like asset specificity, and the assumption that observed organizational choices are efficient. Some studies now adopt multi-stage models, testing not only the alignment between transactions and governance forms, but also the performance implications of such alignment. This dual-level analysis allows researchers to distinguish between theoretical validity and actual managerial effectiveness. Despite the complexity, empirical research—whether quantitative or qualitative—is essential to refining and differentiating theories of the firm, deepening our understanding of how organizations function in practice.

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