Corporate‐level influences on internal capital allocation: The role of financial analyst performance projections

Abstract

Research contends that internal capital should be allocated in proportion to divisional performance, but scholars are often puzzled to find that managers do not adhere to this winner‐picking approach. We argue this is because scholarship has not incorporated corporate‐level factors that influence how corporate managers structure holistic capital allocation strategies. In this study, we build on the behavioral theory of the firm to focus on analyst performance projections for multidivisional corporations and how they inform corporate managers' allocation strategies. Specifically, we theorize corporate managers deviate from the winner‐picking allocation approach owing to search‐related behaviors stemming from projected performance below or above expectations. We further theorize about conditions that offer corporate managers opportunities to deviate from winner‐picking, focusing particularly on multidivisional relatedness and asset durability.

Strategic decision making and influence of economic freedoms on foreign direct investment (FDI) in Bosnia and Herzegovina

“…In order to attract foreign investment, attraction policies (strategies) are needed that include programs to improve workforce skills and take advantage of increased competition. Various activities are being undertaken to attract foreign capital (Busenbark, Semadeni, Arrfelt, & Withers, 2021). Some of them are changes in national laws, financial measures aimed at reducing taxes and providing various financial incentives.…”

Affiliate performance feedback and technology innovation: The mediating effect of the parent’s response

“…Attention refers to “the noticing, encoding, interpreting, and focusing of time and effort by organizational decision-makers” ( Ocasio, 1997 , p.189). Identifying the driving factors of attention distribution helps in exploring the influence of parent functions, as the parent firm guides affiliates’ strategic decisions according to its level of attention ( Belenzon et al, 2019 ; Dutt and Joseph, 2019 ; Rhee et al, 2019 ; Bekmezci et al, 2022 ; Busenbark et al, 2022 ). Owing to bounded rationality ( Simon, 1947 ), the attention capability is limited and the parent firm cannot similarly focus on all affiliates ( Dutt and Joseph, 2019 ; Rhee et al, 2019 ; Eklund and Mannor, 2021 ).…”

“…Resource allocation among affiliates is one of the most essential functions of the parent firm ( Belenzon et al, 2019 ; Sengul et al, 2019 ; Busenbark et al, 2022 ). The existing literature on resource allocation presents two views: winner picking and co-insurance.…”

“…The existing literature on resource allocation presents two views: winner picking and co-insurance. Winner picking theory holds that resource allocation is prioritized for outperforming affiliates to strengthen the core advantage ( Williamson, 1975 ; Tan et al, 2018 ; Sengul et al, 2019 ; Lovallo et al, 2020 ), while co-insurance theory suggests that resource allocation is prioritized for underperforming affiliates to relieve operational risks ( Jia et al, 2013 ; Busenbark et al, 2022 ). Regarding resource allocation, it is generally believed that outperforming affiliates that contribute more to the business group deserve more resources in return ( Arrfelt et al, 2015 ).…”

“…How to allocate resources within a business group is the parent firm’s responsibility, which covers all affiliates ( Belenzon et al, 2019 ; Sengul et al, 2019 ; Busenbark et al, 2022 ). Owing to bounded rationality ( Simon, 1947 ), the parent firm does not have sufficient time and knowledge to assess the value of its affiliates in all dimensions; thus, it focuses its attention on a limited set of variables such as performance ( Arrfelt et al, 2013 ; Bardolet et al, 2017 ).…”