Are large headquarters unproductive?

Headquarters play an important role in modern companies, but the downsizing of headquarters is often advocated as a way to improve organizational efficiency. Using a panel of Japanese companies for the period 2001-2011, this paper empirically analyzes the determinants of the size of headquarters functions and their relationship with productivity. The cross-sectional dispersion of the size of headquarters functions is very large even within an industry. The complication of businesses leads to smaller headquarters. Headquarters functions contribute positively to a company's TFP. Headquarters functions and ICT network have a complementary role for productivity.