Integration, Organizational Processes and Allocation of Resources

47 Pages Posted: 28 May 2003

See all articles by Oguzhan Ozbas

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Abstract

Does the level of integration of a firm affect the quality of information available to its top decision makers responsible for allocating resources? Motivated by the pervasiveness of specific knowledge in large multi-division firms, I develop a model of internal competition for corporate resources among specialist managers and show that: (i) managers of integrated firms exaggerate the payoffs of their projects to obtain resources despite potentially adverse career consequences, and (ii) the exaggeration problem worsens with increased integration and reduces the allocative efficiency of an integrated firm. Control rights based on asset ownership enable the firm to set the rules of the game and improve managerial behavior through organizational processes such as rigid capital budgets, job rotation, centralization and hierarchies.

Suggested Citation

Ozbas, Oguzhan, Integration, Organizational Processes and Allocation of Resources. Journal of Financial Economics, Vol. 75, No. 1, pp. 201-242, January 2005 , Available at SSRN: https://ssrn.com/abstract=412045 or http://dx.doi.org/10.2139/ssrn.412045

Oguzhan Ozbas (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

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