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Access to financing, rents, and organization of the firm

  • Antoine Renucci


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

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    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.

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    Date of creation: 01 Sep 2008
    Date of revision:
    Publication status: Published in Journal of Corporate Finance, Elsevier, 2008, Vol. 14 (Issue 4), pp 337-346. <10.1016/j.jcorpfin.2008.03.001>
    Handle: RePEc:hal:journl:halshs-00365983
    DOI: 10.1016/j.jcorpfin.2008.03.001
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