Managing Multi-Unit Firms in Uncertain Environments: The Role of Trusted Managers

Abstract

This study examines how multi-unit firms manage uncertainty across heterogeneous units through the internal redeployment of trusted managers—those whom the owners trust to act in the firm’s best interests—to units where agency costs are high. Using a novel data set of over 30,000 internal managerial redeployments in multi-unit firms in 15 European countries, we find that diversified and partly owned units are more likely to be allocated trusted managers, especially in regions where institutions are weak. We also find that firms are more likely to send trusted managers in response to exogenous shocks that increase uncertainty, especially where institutions are weak. We discuss the implications of our findings on how a corporate strategy lens can enrich the strategic human capital allocation literature.