Organizational Scope and Allocation of Resources: Evidence on Rigid Capital Budgets

36 Pages Posted: 3 Feb 2006 Last revised: 3 Nov 2009

See all articles by Oguzhan Ozbas

Oguzhan Ozbas

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

Zekiye Selvili

California State University, Fullerton - Department of Finance

Date Written: October 30, 2009

Abstract

This paper compares the investment behavior of multi-segment firms (firms with multiple business units) with that of single-segment firms. Models that omit within-firm information and incentive problems predict both set of firms to invest in response to investment opportunities. Our main findings reject this null. In particular, multi-segment firms exhibit a tendency to maintain a fixed level of capital in their business units regardless of investment opportunities. In addition to exhibiting rigid investment behavior, multi-segment firms are also less responsive to investment opportunities than single-segment firms. These effects are especially strong in multi-segment firms with unrelated business units. Our findings support the existence of agency problems within multi-segment firms.

Keywords: Organizational scope, Rigid capital budgets

JEL Classification: D21, D23, G31

Suggested Citation

Ozbas, Oguzhan and Selvili, Zekiye, Organizational Scope and Allocation of Resources: Evidence on Rigid Capital Budgets (October 30, 2009). Available at SSRN: https://ssrn.com/abstract=880789 or http://dx.doi.org/10.2139/ssrn.880789

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)

Zekiye Selvili

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
155
Abstract Views
1,334
rank
207,901
PlumX Metrics