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Access to financing, rents, and organization of the firm

Author

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  • Antoine Renucci

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper provides a theory for the choice of an organizational structure by the headquarters of a unitary structure concerned about overload. The headquarters can avoid overload by delegating operational decisions to divisions, i.e., moving the firm to a multidivisional structure. We show that, under moral hazard, these divisions receive rents for incentive purposes, and that the multidivisional structure is able to invest more. Thus, there is a trade-off between increasing investment and paying rents. We also show that this trade-off applies to situations where firms consider engaging in acquisitions and joint ventures, or where entrepreneurs consider resorting to venture capitalists.

Suggested Citation

  • Antoine Renucci, 2008. "Access to financing, rents, and organization of the firm," Post-Print halshs-00365983, HAL.
    • Handle: RePEc:hal:journl:halshs-00365983
    DOI: 10.1016/j.jcorpfin.2008.03.001
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00365983
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    References listed on IDEAS

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    2. Qing Ma & Susheng Wang, 2022. "Boundary of the firm with endogenous firm structure," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 797-816, December.

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