Interdependencies and Ownership: The Impact of Relatedness and Multimarket Contact on Cash Flow Rights in Multiunit Firms

45 Pages Posted: 7 Jun 2022 Last revised: 9 Dec 2022

See all articles by Metin Sengul

Metin Sengul

Boston College - Management & Organization Department

Tomasz Obloj

HEC Paris - Strategy & Business Policy

Date Written: May 23, 2022

Abstract

We examine the influence of interdependencies on parent companies’ cash flow rights in their subsidiaries, focusing on two forms of interdependency that characterize multiunit firms: relatedness and multimarket contact. Specifically, we argue that interdependencies affect the extent of a parent’s cash flow rights in a subsidiary through their influence over value creation and the value capture potential of that subsidiary. Accordingly, we hypothesize that parent companies will have higher cash flow rights in highly related subsidiaries. We also hypothesize that there will be an inverted-U shaped relationship between the extent of multimarket contact and parents’ cash flow rights in subsidiaries that operate in industries with multimarket rivals. We tested our predictions and found corroborating evidence in a sample of subsidiaries that had been newly added to French manufacturing firms. In supplementary analyses, we also found that relatedness and multimarket contact affect the position of a new subsidiary in the hierarchical structure of a firm, as measured by the subsidiary’s number of direct paths to and hierarchical distance from the parent. Our study, which builds on the theory of ownership as a governance mechanism, provides initial evidence surrounding the role of interdependencies as antecedents of cash flow rights within multiunit firms.

Keywords: organization design, interdependencies, ownership, multi-subsidiary firms, relatedness, multimarket contact

Suggested Citation

Sengul, Metin and Obloj, Tomasz, Interdependencies and Ownership: The Impact of Relatedness and Multimarket Contact on Cash Flow Rights in Multiunit Firms (May 23, 2022). HEC Paris Research Paper No. SPE-2022-1458, Available at SSRN: https://ssrn.com/abstract=4117594 or http://dx.doi.org/10.2139/ssrn.4117594

Metin Sengul

Boston College - Management & Organization Department ( email )

Chestnut Hill, MA 02467
United States

Tomasz Obloj (Contact Author)

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

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