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The Benefit and Cost of Winner Picking: Redistribution Vs Incentives

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Author Info
Axel Gautier
Florian Heider

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Abstract

The Benefit and Cost of Winner Picking: Redistribution Vs Incentives |AB| A multi-divisional firm can engage in "winner-picking" to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources internally to reward winners (incentives). Managers in winning divisions are tempted to free-ride on resources produced by managers in loosing divisions whose incentives to produce resources, anticipating their loss, are also weakened. Corporate headquarter's investment and incentive policy are therefore inextricably linked and have to be treated as jointly endogenous. The analysis links corporate strategy, compensation and the value of diversification to the characteristics of multi-divisional firms.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse31_2002.

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Length: 39
Date of creation: Nov 2002
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Handle: RePEc:bon:bonedp:bgse31_2002

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Related research
Keywords: Conglomerate; Internal capital market;

Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Axel, GAUTIER & Malika, HAMADI, 2005. "Internal Capital Market Efficiency of Belgian Holding Companies," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004037, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
    Other versions:
  2. GAUTIER, Axel & WAUTHY, Xavier, 2004. "Teaching versus rechearch : a multi-tasking approach to multi-department univerities," CORE Discussion Papers 2004003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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