Centralization and Firm Performance: New Evidence on the Role of Firm Size

Centralization has been regarded as an important factor in corporate governance in the academic and business communities. Although several studies have examined the relationship between centralization and firm performance, the conclusions remain mixed. We extend existing research by introducing firm size as a threshold variable into our model to explicate the complicated effects of centralization on firm performance. We found that a high degree of centralization can promote firm performance significantly in small- and medium-scale firms while inhibiting firm performance in large-scale firms. Using heterogeneity analysis, we found that centralization has a more significant positive impact on firm performance in private firms, family firms, and manufacturing firms than others. Furthermore, we explored the factors influencing the nexus between centralization and firm performance and found that centralization can improve the level of cost allocation management and technology innovation, driving firm performance but possibly resulting in overinvestment, which is harmful to firm performance. Our research provides guidance for companies to establish a decision-making power allocation that meets their scale-appropriate development needs.