Examining a key corporate role: The influence of capital allocation competency on business unit performance |
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Authors: | Mathias Arrfelt Robert M Wiseman Gerry McNamara G Tomas M Hult |
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Affiliation: | 1. Department of Management, W. P. Carey School of Business, Arizona State University, Tempe, Arizona, U.S.A.;2. Department of Management, Eli Broad Graduate School of Management, Michigan State University, East Lansing, Michigan, U.S.A. |
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Abstract: | Research on the role of the corporate office in firm performance has focused on establishing how much performance variance can be attributed to a “corporate effect,” with little attention devoted to understanding how this influence occurs. In this study, we model capital allocation competency as a dynamic managerial capability and find that lower levels of allocation competency in the form of excess investment to business units with relatively poorer future prospects reduce business unit performance. We also find that market conditions affect performance implications of capital allocation—allocation competency is more salient in more competitive markets. These results enhance our understanding of how the corporate office influences business unit performance through its role in allocating capital across business units. Copyright © 2014 John Wiley & Sons, Ltd. |
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Keywords: | capital allocation competency overinvestment corporate effect corporate strategy business unit performance |
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