The Transmission of Economic Shocks in Multidivisional Organizations: An Empirical Analysis of the Global Retail Industry

Timo Sohl (), Brian T. McCann () and Govert Vroom ()
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Timo Sohl: UPF Barcelona School of Management, Pompeu Fabra University, 08008 Barcelona, Spain
Brian T. McCann: Owen Graduate School of Management, Vanderbilt University, Nashville, Tennessee 37203
Govert Vroom: Strategic Management Department, IESE Business School, 08034 Barcelona, Spain

Organization Science, 2025, vol. 36, issue 2, 697-717

Abstract: Capital allocation research has long argued that divisions of multidivisional organizations may be relatively advantaged compared with standalone firms when external capital markets are less efficient. As a complement to this literature that largely focuses on deficiencies in the supply of external capital, we theorize about the effects of disruptions to internal capital markets. More specifically, we explore the impact of parent-level financial shocks on the growth of divisions. We first argue that the effects of a crisis in a parent country disrupt the supply of internal capital available to foreign divisions, resulting in significantly reduced asset growth in these divisions. Next, we offer an initial step toward developing comprehensive understanding of the contextual influences that may intensify or attenuate the effect of shocks by theorizing a broad set of moderators that consider the parent level, parent-division linkages, and the division level within multidivisional organizations. Analyses of 1,968 geographic divisions of multinational retailers across 92 host countries show that effects of parent financial crises on division investment depend on factors influencing the degree of parent exposure, shock transmission, and division adaptability.

Keywords: corporate strategy; multidivisional organizations; resource allocation; financial crises; division-level investment (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:36:y:2025:i:2:p:697-717

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