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Examining a key corporate role: The influence of capital allocation competency on business unit performance
Author(s) -
Arrfelt Mathias,
Wiseman Robert M.,
McNamara Gerry,
Hult G. Tomas M.
Publication year - 2015
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2264
Subject(s) - capital allocation line , strategic business unit , business , unit (ring theory) , salient , industrial organization , capital (architecture) , investment (military) , affect (linguistics) , competitive advantage , variance (accounting) , human capital , marketing , microeconomics , economics , accounting , computer science , market economy , mathematics education , archaeology , history , profit (economics) , linguistics , philosophy , mathematics , artificial intelligence , politics , political science , law
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.