Internal Market for Executives: Inter-divisional Resource Sharing and Executive Transfer

Abstract

The problem of resource allocation is a particularly pressing issue in large and highly diversified companies, where business divisions of different industry dynamics compete for limited resources. However, prior work has focused primarily on impersonal, often structural, mechanisms for resource coordination and control, paying scant attention to the actual process involving human agents such as executives who perform the role of coordination and control in strategic resource allocation decisions. To address this situation, we explore how the inter-divisional mobility of executives serves as a key mechanism to manage the corporate-wide sharing of both tangible and intangible resources. Using business groups in Korea from 1989 to 2006 as an empirical setting, we demonstrate that patterns of executive transfer among divisions clearly coincide with group-level resources and intra-group dependence relationship. Our results also show that such patterns are reshaped by the influence of external environments, i.e., product market competition and capital market control. This study highlights the unique importance of executives who carry the role of coordination and control in sharing resources within a firm, and thereby provides new insight for extant research that has viewed internal labor markets as sources of individual or firm-specific skills.