This paper study the choice of an organizational
structure and diversification strategy in a long-run
relationship. We compare a decentralized hierarchy
relative to a centralized one where there are conflicts
of interest among the Board of directors, the CEO and
divisional managers and there are two diversification
strategies available; a related and an unrelated one.
Consistent with the empirical evidence a decentralized
structure is more likely to be optimal when an unrelated
diversification strategy is pursued, while a centralized
structure is more likely to be optimal when a related
strategy is pursued. We use our framework to briefly
discuss the relationship between strategy, structure and
internal capital markets and the benefits and costs of
mergers. Abstract. pdf-file available for download. 1999
