Factoring Synergies into Resource Allocation Decisions

Part of the rationale behind the multi-business organisational structure is that headquarters can do a better job of allocating resources across the various businesses than the capital markets would if the businesses stood alone. On the one hand, HQ has more knowledge about the businesses and more power to ensure that subordinates take steps to enhance the value of its internal investments. On the other hand, HQ has relatively fewer investment opportunities, and can be subject to conflicts of interest with shareholders.