English, Article, Journal or magazine article edition: Diversification and Delegation in Firms Sonja Daltung; Vittoria Cerasi

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Bookmark: http://trove.nla.gov.au/version/45179
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Diversification and Delegation in Firms
Author
  • Sonja Daltung
  • Vittoria Cerasi
Physical Description
  • preprint
Notes
  • This paper shows how separation of ownership and control may arise as a response to overload costs, despite agency costs, and how conglomerates arise as solution to information asymmetries in capital markets. In a context where entrepreneurs have the ability to run projects and improve their future cash flow, there could be rationing of credit due to moral hazard between entrepreneurs and investors. Diversification could mitigate the moral hazard problem. However for a single entrepreneur running many different projects might be increasingly costly due to overload costs. Delegating the running of projects to several managers can not only reduce overload costs, but also the moral hazard problem of external financing. In this paper we show that delegation can be the only way to exploit the gains from diversification when overload costs of diversification are high; delegation thus is the key ingredient to be able to diversify.
  • RePEc:fmg:fmgdps:dp403
Language
  • English
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