Internal Resource Allocation and External Alliance Activity of Diversified Firms

Abstract

Prior research suggests that diversified firms are often unable to match resources to the market needs and opportunities of their divisions due to factors such as influence activities. In this research, we propose that when such internal inefficiencies arise, diversified firms may form alliances to access resources externally to support their divisions in their industries and operations. Using a sample of US firms between 1997 and 2006, we find that, on average, diversified firms form more alliances within industries that they currently operate in when compared to single business firms. The alliancing activity in related industries increases when businesses with diverse growth opportunities exist within the same firm, and it decreases with the intensity of internal control and coordination mechanisms. Our study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their boundaries.

The impact of managerial job security on corporate entrepreneurship: Evidence from corporate venture capital programs

“…In addition to prevailing innovation levers, increases to job security manifest in experimentation with new techniques or processes that broaden the firm's process portfolios. While prior research has examined adjustments to firms' innovation portfolios in general (Lungeanu et al, 2016), or specifically involving the addition of CVC (Gaba & Bhattacharya, 2012; Ma, 2020), these studies focus on the influence of economic or performance factors on portfolio modifications but elements other than market competition may influence how opportunities are assessed and exploited (e.g., Cabral et al, Forthcoming). As such, we contribute to this stream by identifying how public policy and corresponding job security impacted whether and when firms adopted CVC units.…”

“…Firm size has been shown to influence the degree and direction of innovation expenditures, as well as adoption of CVC programs (Basu et al, 2011; Younge & Tong, 2018). Moreover, large firms that are diversified may also be prone to internal resource allocation inefficiencies which may prompt greater use of CVC programs as vehicles to source innovation externally (Cabral, Deng, & Kumar, Forthcoming). Accordingly, we control for Size using the firm's assets in a given year.…”

Different people, different pathways: Human capital redeployment in multi‐business firms

“…In general, internally developed human capital is difficult to replace through external hiring, and it is often impossible to adequately compensate for its loss (Keller et al, 2021). Intuitively, we may think that parents use U → P redeployment in anticipation of closure (Santamaria, 2022), yet prior research equally shows that parents withdraw resources from strong units to support underperforming units (Belenzon et al, 2019; Cabral et al, 2020). Thus, there may not be a consistent selection effect that explains the relationship between U → P redeployment and performance.…”

Strategic Decision Making in the Digital Age: Expert Sentiment and Corporate Capital Allocation

“…Prior research shows that division heads tend to provide biased information to promote their SBU’s interests, which affects the capital‐allocation process negatively by diverting resources from its most efficient use (Kumar, 2013; Harris and Raviv, 1998). The use of external market mechanisms, such as alliances, offers a potential remedy for these internal inefficiencies in resource allocation (Cabral et al, 2020). Following a similar logic, by representing external information, expert sentiment is more independent and potentially more reliable, therefore offering an external benchmark to challenge the SBU leaders’ internal views at relatively low additional information processing costs.…”