Abstract
The roles of headquarters in multi-business firms are a central issue of corporate strategy. However, systematic evidence on this topic is seriously lacking. Based on unique governmental data, this article contributes to filling the void by studying the headquarters of Japanese firms. We find strong evidence for the conflicting roles of headquarters. On the one hand, firms with higher R&D and advertising intensities have larger headquarters, consistent with the notion that these organizational units help to generate operating synergy by promoting inter-business resource sharing. On the other hand, the size of headquarters is inversely associated with internal capital market efficiency, suggesting that a large central office reduces a firm's ability to profit from financial synergy. Despite the tradeoff implies by these results, larger headquarters are on average valued higher by investors. We find little evidence that headquarters grow excessively large.
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