Multidivisional Strategy and Investment Returns
I thank Tony Bernardo, Marvin Lieberman, and Olav Sorenson for their guidance and support. I also wish to thank Ashwini Agrawal, Kenneth Ahern, Judy Chevalier, Darlene Chisholm, Ricard Gil, Deepak Hegde, Julia Liebeskind, Joe Ostroy, Toni Whited, Maggie Zhou, and audiences at NYU Stern, UCLA Anderson, Universidad de Piura, the American Finance Association, and the International Society of New Institutional Economics for helpful comments. Special thanks to Hong Luo for generously facilitating access to data on movie ideas for supplementary tests. Errors are all mine. This paper previously circulated under different titles.
This paper studies the influence of multidivisional structure on investment returns using a large database of projects in the U.S. film distribution industry, a setting in which divisionalization exists without horizontal diversification—all divisions of multidivisional distributors release feature films. The findings are consistent with a positive effect of multidivisional strategy on investment returns, even if total investment need not increase. Multidivisional strategies are more consequential for higher profitability when firms share key human talent across their divisions.