Agency theory implies that asset ownership and decision authority are complements. Using 1998 data from Texas commercial banks, we test whether the likelihood of local ownership of bank offices increases with the importance of granting local managers greater decision authority (for example, due to location or customer base). Our empirical evidence is consistent with this hypothesis. It suggests that complementarities between strategy and organizational structure can foster differentiation among firms in terms of location, customers, and products. It also supports the growing view that small locally-owned banks have a comparative advantage over large banks within specific environments.

We examine theories of leverage and debt maturity, focusing on the impact of firms' investment opportunity sets and regulatory environments in determining these policies. Using results on strategic complementarities, we identify sufficient conditions for the theory to have testable implications for reduced-form and structural-equation regression coefficients. Obtaining testable implications for structural equations requires less from the theory but more from the data than the reduced-form specification because it requires an instrumental-variables approach. We examine this trade-off between theory and statistical methods and provide tests using two decades of data for over 5000 industrial firms.