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Access to financing, rents, and organization of the firm

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Author Info
Antoine Renucci () (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)
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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Paper provided by HAL in its series Post-Print with number halshs-00365983_v1.

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Date of creation: 01 Sep 2008
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Publication status: Published, Journal of Corporate Finance, 2008, Vol. 14, Issue 4, pp 337-346
Handle: RePEc:hal:journl:halshs-00365983_v1

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

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