INTERNAL ORGANIZATION AND FIRM PERFORMANCE - AN ANALYSIS OF LARGE UK FIRMS UNDER CONDITIONS OF ECONOMIC UNCERTAINTY

The relationship between firm performance and internal characteristics is examined in a sample of large UK firms. The way in which organizat ional form, internal control mechanisms and transitional costs affect profitability is examined. Performance is measured relative to the ind ustry average with firms earning in excess of this being identified as being profit driven. A sensitivity analysis is undertaken using two a nd three times industry average profits as alternative dependent varia bles. Legit analysis was used to estimate the relationships. It was fo und that organisational form had no significant effect on profitabilit y. The separation of decision management from decision control increas ed the probability of earning more than twice industry average profits . However, for firms which had undertaken a structural reorganization within the three previous years the probability of earning more than t wice industry average profits is reduced. It was also found that firms which had a majority of executive directors were more likely to earn above industry average profits. None of the models analysed was able t o explain the presence of profits in excess of three times the industr y average, a result which has implications for antitrust policy.