All Things Great and Small: Organizational Size, Boundaries of the Firm, and a Changing Environment

Abstract

Research findings have established a relationship between organizational size and a substantial set of organizational outcomes, resulting in size's distinction as “perhaps the most powerful explanatory organizational covariate in strategic analysis”. We draw on the theory of the firm to provide a theory-driven definition of firm size and as a framework to organize the diverse research on firm size. We examine studies over the last 20 plus years since the last review of research on organizational size that have expanded our understanding of the advantages and disadvantages of larger firms, the environmental factors that have changed the merits of firms relative to markets, the managerial bias to pursue growth, and the most recent findings on the performance implications of organizational size. In doing so, the review provides extensions to our understanding of the theory of the firm, by integrating contingency theory, the resource-based theory of the firm, leadership theories, and the knowledge-based view of the firm. In addition, based on an extensive review of the measurement methodologies for the most common control variable employed by strategy scholars, this review outlines a rich and robust set of opportunities for future research to explore the nature of organizational size and its effects.

Acknowledgements

We gratefully acknowledge the guidance and direction we received from the Editor (Sim Sitkin) and Associate Editor (Laura Cardinal); their feedback and encouragement significantly improved the quality of this paper, particularly in helping us identify the many theoretical implications of our work. We are thankful for conversations with colleagues at Texas A&M University that helped us develop our thinking, particularly Mike Withers, Mike Howard and Bree Josefy who provided feedback on our initial proposal. We are also grateful to Alex Clakley, Lauren Dittmar and Jessica De Los Santos who helped us in sorting through the tremendous number of articles we reviewed and coded for their inclusion of organizational size, and to the Dean's Office at Mays Business School for financially supporting this effort.

ORCID

Matthew Josefy http://orcid.org/0000-0003-1174-1878

Notes

1. While not all organizations can be considered firms, we find that organization size and firm size are used relatively interchangeably in the literature and we accordingly utilize both terms in this review. Although we focus on the theory of the firm, most of our arguments can be generalized to other organizational forms. Where possible, we seek to mimic the language of the study we cite.