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Ownership as a Bundle of Rights: Antecedents of the Wedge Between Control and Cash-Flow Rights Within Firms

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  • Tomasz Obloj

    (Indiana University, Bloomington, Indiana 47405)

  • Metin Sengul

    (University of Texas at Austin, Austin, Texas 78712)

Abstract

In this paper, we examine the antecedents of ownership rights within multiunit firms, focusing on the wedge between the control rights and cash-flow rights that parent companies hold over their subsidiaries. We argue that a key antecedent of a parent’s ownership rights in a subsidiary is the extent of the subsidiary’s interdependencies with the firm. Exploring two such interdependencies, we hypothesize that (1) the wedge between parents’ control and cash-flow rights is smaller for subsidiaries that are more closely related to the firm and (2) there is a U-shaped relationship between the extent of a firm’s multimarket contact in an industry and the wedge between parents’ control rights and cash-flow rights for subsidiaries that operate in that industry. We tested our predictions and found evidence supporting the first hypothesis and mixed results for the second in a sample of subsidiaries newly added to French manufacturing firms through acquisitions or de novo creations. In supplementary analyses, we also found that a subsidiary’s interdependencies are also associated with its hierarchical position within the firm’s formal authority structure.

Suggested Citation

  • Tomasz Obloj & Metin Sengul, 2025. "Ownership as a Bundle of Rights: Antecedents of the Wedge Between Control and Cash-Flow Rights Within Firms," Strategy Science, INFORMS, vol. 10(2), pages 109-127, June.
    • Handle: RePEc:inm:orstsc:v:10:y:2025:i:2:p:109-127
    DOI: 10.1287/stsc.2022.0114
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