Access to financing, rents, and organization of the firm

Antoine Renucci (1)

1 DRM - Dauphine Recherches en Management

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.

Keywords: Unitary-form; Multidivisional-form; Agency rents; Credit rationing

Domains: Business administration

Antoine Renucci. Access to financing, rents, and organization of the firm. Journal of Corporate Finance, 2008, 14 (4), pp.337-346. ⟨10.1016/j.jcorpfin.2008.03.001⟩. ⟨halshs-00365983⟩