Supply-Side Inducements and Resource Redeployment in Multi-Unit Firms
42 Pages Posted: 23 Jun 2020 Last revised: 13 Dec 2023
Date Written: November 24, 2023
We examine to what extent and when multi-unit firms internally redeploy managers between units. While theory has emphasized how changes in demand conditions affect redeployment, we argue that optimal internal resource allocation involves consideration of both demand and each unit’s resource supply. We formalize this argument, showing how redeployment arises from “supply-side inducements”—return advantages in new over existing resource uses resulting from changes in resource supply. Empirical tests using manager deaths as an exogenous, supply-side shock to firms’ resource stocks support our arguments, showing that firms frequently redeploy resources away from better-endowed and toward negatively affected units. Incorporating supply-side inducements into redeployment theory implies additional value-creation opportunities from redeployment and carries novel predictions for the direction of intra-firm resource flows.
Keywords: resource allocation, redeployment, inducements, human capital, firm growth
JEL Classification: J6, M12
Suggested Citation: Suggested Citation