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The Benefit and Cost of Winner Picking: Redistribution Vs Incentives

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  • Gautier, Axel
  • Heider, Florian
Abstract
The Benefit and Cost of Winner Picking: Redistribution Vs Incentives |AB| A multi-divisional firm can engage in "winner-picking" to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources internally to reward winners (incentives). Managers in winning divisions are tempted to free-ride on resources produced by managers in loosing divisions whose incentives to produce resources, anticipating their loss, are also weakened. Corporate headquarter's investment and incentive policy are therefore inextricably linked and have to be treated as jointly endogenous. The analysis links corporate strategy, compensation and the value of diversification to the characteristics of multi-divisional firms.

Suggested Citation

  • Gautier, Axel & Heider, Florian, 2002. "The Benefit and Cost of Winner Picking: Redistribution Vs Incentives," Bonn Econ Discussion Papers 31/2002, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:312002
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    References listed on IDEAS

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    Cited by:

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    2. Roman Inderst & Holger M. Mueller & Felix Münnich, 2006. "Financing a Portfolio of Projects," The Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1289-1325.
    3. Gautier, Axel & Wauthy, Xavier, 2007. "Teaching versus research: A multi-tasking approach to multi-department universities," European Economic Review, Elsevier, vol. 51(2), pages 273-295, February.
    4. Svetlana Grigorieva & Georgii Gorbatov, 2015. "Puzzle of Corporate Diversification Efficiency in Bric Countries," HSE Working papers WP BRP 47/FE/2015, National Research University Higher School of Economics.

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    More about this item

    Keywords

    Conglomerate; Internal capital market;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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