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Access to financing, rents, and organization of the firm

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  • Antoine Renucci

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

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    Abstract

    This paper provides a theory for the choice of an organizational structure by the headquarters of a unitary structure concerned about overload. The headquarters can avoid overload by delegating operational decisions to divisions, i.e., moving the firm to a multidivisional structure. We show that, under moral hazard, these divisions receive rents for incentive purposes, and that the multidivisional structure is able to invest more. Thus, there is a trade-off between increasing investment and paying rents. We also show that this trade-off applies to situations where firms consider engaging in acquisitions and joint ventures, or where entrepreneurs consider resorting to venture capitalists.

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    File URL: http://halshs.archives-ouvertes.fr/docs/00/36/59/83/PDF/Access_to_financing_rents_and_organization_of_the_firm.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00365983.

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    Date of creation: 01 Sep 2008
    Date of revision:
    Publication status: Published, Journal of Corporate Finance, 2008, Vol. 14, Issue 4, pp 337-346
    Handle: RePEc:hal:journl:halshs-00365983

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00365983/en/
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    Web page: http://hal.archives-ouvertes.fr/

    Related research

    Keywords: Unitary-form; Multidivisional-form; Agency rents; Credit rationing;

    References

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