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Conglomerate internal informational advantage and resource allocation efficiency

Author

Listed:
  • Shih-Chu Chou

    (San Francisco State University)

  • Ramachandran Natarajan

    (University of Texas at Dallas)

  • Kenneth Zheng

    (University of Wyoming)

Abstract

Using financial data from a large sample of U.S. conglomerates, we find a significant and positive association between conglomerate informational advantage through internal information markets and resource allocation efficiency. Our finding suggests that the internal informational environment of conglomerates plays an important role in top management internal resource allocation decisions. Additional evidence shows that this positive association is more pronounced when internal competition for resources is higher, suggesting that internal competition elevates the importance of conglomerate informational advantage in internal resource allocation efficiency. Finally, this association is weaker when top management is more powerful, suggesting that powerful CEOs have access to alternative channels of information, which limits the usefulness of conglomerate informational advantage for their internal resource allocation decisions.

Suggested Citation

  • Shih-Chu Chou & Ramachandran Natarajan & Kenneth Zheng, 2022. "Conglomerate internal informational advantage and resource allocation efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 717-748, August.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:2:d:10.1007_s11156-022-01056-w
    DOI: 10.1007/s11156-022-01056-w
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    More about this item

    Keywords

    Conglomerate information environment; Resource allocation efficiency; Inter-industry information transfer; Internal competition;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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