Organizational Structure, Voluntary Disclosure, and Investment Efficiency

40 Pages Posted: 28 Jun 2019 Last revised: 13 Jan 2021

See all articles by Hyun Hwang

Hyun Hwang

University of Texas at Austin - Department of Accounting

Date Written: July 13, 2020

Abstract

An important role of corporate disclosure is to improve the efficiency of capital allocation, and a key part of this process is firms’ internal allocation of capital across their multiple projects. This paper examines the effect of internal capital allocation on firms’ disclosure incentives and how these incentives affect internal capital allocation and investment efficiency. I identify conditions under which the multi-project firm that can perform internal capital allocation withholds more information than a group of stand-alone firms. Under these conditions, I show that the investment efficiency of the multi-project firm is higher than that of a group of stand-alone firms. The results suggest that corporate disclosure and internal capital allocation are substitutes in improving investment efficiency. This provides one explanation for why a multi-divisional structure may be preferred, although the structure appears inefficient.

Keywords: Organizational structure, internal capital allocation, corporate disclosure, investment efficiency

JEL Classification: D23, D82, D83, L22, L25, M41

Suggested Citation

Hwang, Hyun, Organizational Structure, Voluntary Disclosure, and Investment Efficiency (July 13, 2020). Available at SSRN: https://ssrn.com/abstract=3411144 or http://dx.doi.org/10.2139/ssrn.3411144

Hyun Hwang (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

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