Examining a key corporate role: The influence of capital allocation competency on business unit performance

Mathias Arrfelt, Robert M. Wiseman, Gerry McNamara, G. Tomas M Hult

Research output: Contribution to journalArticle

20 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1017-1034
Number of pages18
JournalStrategic Management Journal
Volume36
Issue number7
DOIs
StatePublished - Jul 1 2015

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Keywords

  • business unit performance
  • capital allocation competency
  • corporate effect
  • corporate strategy
  • overinvestment

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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