This paper examines the agency cost of winner-picking in multi-divisional firms and uses explicit incentive contracts to analyze the interaction between corporate headquarters' investment and incentive policies. Winner-picking, i.e. the efficient reallocation of scarce resources in an internal...

A multi-divisional firm can engage in quot;winner-pickingquot; to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources with which to reward winners (incentives). Managers in winning divisions are tempted to...

The Benefit and Cost of Winner Picking: Redistribution Vs Incentives

In this paper we explain the apparent ''diversification discount'' of conglomerates without assuming inefficient-cross subsidisation through internal capital markets. Instead we assume that an internal capital market efficiently redistributes scare resources across a conglomerate's divisions...