The architecture of attention: Group structure and subsidiary autonomy

Abstract

Research Summary: This paper examines the relationship between strategic decision-making at the subsidiary level and organizational structure. In many organizations, headquarters and subsidiaries are separated by intermediate subsidiaries. Building on the attention-based view of the firm, we argue that the greater the "organizational distance" of a focal subsidiary from headquarters (measured by the number of intermediate subsidiaries separating the subsidiary from headquarters), the lower the attention that headquarters devote to the subsidiary. Thus, subsidiary autonomy from headquarters increases with organizational distance. Using a large comprehensive dataset on the structure of corporate groups in Western Europe, we provide several pieces of evidence consistent with these hypotheses. By contrast, we find little support for the view that tall pyramids are created to magnify the voting control of large shareholders. Managerial Summary: Corporate groups-confederations of legally independent firms linked via ownership tiesare common around the world. An important function of headquarters in corporate groups is to allocate resources among member firms. We argue that, because headquarters mostly focus on allocating resources among units that they directly own, subsidiaries near the top of the group perform differently in response to changing external

Are Investors Aware of Ownership Connections?

“…Beuselinck et al (2014) analyze earnings management within multinational corporations. Finally, Belenzon et al (2017) study the autonomy of distant subsidiaries from the headquarters in the corporate network. Our findings contribute to the understanding of how investors perceive earnings announcements made by companies belonging to a network based on ownership links.…”

Firm performance in networks: The interplay between firm centrality and corporate group size

“…If firms are directly controlled by the same ultimate beneficial owner(s), they can be viewed as members of a group rather than independent because their business can be related in some way. Cainelli and Iacobucci (2011) and Belenzon et al (2017) define these firms as members of a corporate group. In the case of Italy, corporate groups controlled by family are quite common (Corbetta and Tomaselli, 1996;Cucculelli and Micucci, 2008), and more attention should be paid to this type of corporate group.…”

“…Another (reverse) centrality measure of a firm is simply counting its distance from the ultimate owner (Belenzon et al, 2017). By analyzing the data on the structure of corporate groups in Western Europe, Belenzon et al (2017) find that the focal subsidiaries with greater organizational distance from parent companies have Figure 2: Original Harmonic Centrality Figure 3: Normalized Harmonic Centrality lower sales growth rates and that their performance is more similar to that of the matched standalone firms in response to changing industry conditions. They call the simple measure the ownership level, which is defined as the number of intermediate subsidiaries separating a focal subsidiary from the parent company.…”

“…We take the number of firms in a corporate group to measure group size 14 (Belenzon et al, 2017;Del Prete and Rungi, 2015). Because this measure has a long-tailed distribution, we perform a log transformation to reduce the variance.…”

“…In this work, we analyze the ownership networks of corporate groups, which are defined as confederations of legally independent firms linked by multiplex ties (Almeida and Wolfenzon, 2006;Belenzon and Berkovitz, 2010;Belenzon et al, 2013) and belonging to the same owner(s) (Belenzon et al, 2017;Cainelli and Iacobucci, 2011;Cainelli et al, 2006). Firms can exchange financial capital, knowledge and managerial skills with other firms in the same group through ownership links (Blomström and Sjöholm, 1999;Markusen, 1995).…”