Internal Capital Allocation, Voluntary Disclosure, and Investment Efficiency

• 成果类型: Article; Early Access
• 署名作者: Hwang, Hyun
• 署名单位: University of Texas System; University of Texas Austin
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.01295
• 发表日期: 2025
• 关键词: Organizational structure; internal capital allocation; disclosure; investment efficiency

摘要

I develop an analytical model to examine the effect of disclosure on organizational structure. In this model, an owner with two investment projects decides whether to organize them as a single multidivisional firm or two stand-alone firms whose manager(s) may issue a truthful but costly disclosure of each project's profitability to raise capital. In a multidivisional firm, capital is initially provided by investors and subsequently allocated across the two projects by the manager. The analysis shows that a multidivisional structure allows for efficient internal capital allocation while avoiding disclosure costs, whereas a stand-alone structure prevents inefficient cross-subsidization. Specifically, a multidivisional structure is optimal when disclosure costs are high relative to project payoffs. These results help explain empirical evidence that multidivisional firms tend to trade at a discount.