THE LIMITS OF GROWTH OF THE MULTIDIVISIONAL FIRM - A CASE-STUDY OF THE UNITED-STATES OIL INDUSTRY FROM 1930-90

Some scholars (Chandler, 1977; Penrose, 1959) believe that firms grow by transferring inimitable marketing, production, and research skills from one line of business to another. Extending this view and emphasiz ing the role of the central office of a multidivisional firm to transf er administrative skills, Williamson (1975) argues that competition am ong business units within the firm mimics a competitive capital market and leads to an efficient allocation of resources. Coase (1937), howe ver, argues that firm size is limited by the costs of organizing diver se transactions and Chandler (1991) claims that growth is constrained by the technical and marketing expertise of the top managers. The purp ose of this paper is to demonstrate that the scope of the multidivisio nal firm is limited by the transferability of firm-specific skills and the efficiency of capital markets. Support comes from a case study of 19 oil companies over the 1930-90 period.