An Innovation Theory of Headquarters Value in Multibusiness Firms

44 Pages Posted: 19 Oct 2016 Last revised: 16 May 2018

See all articles by Anne Marie Knott

Anne Marie Knott

Washington University in St. Louis - John M. Olin Business School

Scott Turner

University of South Carolina

Date Written: April 14, 2018

Abstract

A fundamental question in corporate strategy is how headquarters in multibusiness firms can create value above and beyond the burden of its own overhead. The leading theories from Chandler and Williamson hold this is possible through resource allocation across businesses. Yet there are multibusiness firms for whom reallocation opportunities are limited, e.g., chains. Accordingly, we propose, model and test an alternative theory, one in which HQ facilities market-like dynamics between businesses that fuel innovation and growth. Whereas Chandler’s and Williamson’s theories involve the visible hand of managers, ours involves an invisible hand of managers. We construct an interacting agent model of the theory, which yields three propositions relating multibusiness structure to firm growth. We test those propositions in the banking industry, and obtain results consistent with the model’s predictions. In particular knowledge growth increases in the number of units, heterogeneity in their knowledge and increases then decreases in their geographic distance. Interestingly, once we account for these structural elements, scale and hierarchy both suppress innovation. Thus, neither Williamson’s nor Chandler’s theories hold in our setting (consistent with the argument motivating the need for an additional theory).

Keywords: Innovation, Growth, Multi Business Firms, Heterogeneity

JEL Classification: L29, O32

Suggested Citation

Knott, Anne Marie and Turner, Scott, An Innovation Theory of Headquarters Value in Multibusiness Firms (April 14, 2018). Available at SSRN: https://ssrn.com/abstract=2854501 or http://dx.doi.org/10.2139/ssrn.2854501

Anne Marie Knott (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Scott Turner

University of South Carolina

701 Main Street
Columbia, SC 29208
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
80
Abstract Views
517
rank
311,769
PlumX Metrics