Some recent empirical results suggest that multi-segment firms tend to underperform stand-alone firms because the multi-segment firms underinvest in high-profit segments and overinvest in low-profit segments - a phenomenon we called flattened resource allocations (henceforth FRA). By abstracting from rent-seeking behavior - a problematic assumption used in the existing literature, we present a more robust model showing that FRA is a negative externality existing in multi-segment firms but not in stand-alone firms and, consistent with empirical findings, its inefficiency increases in both the degree of diversification and separation of ownership from control of the firm. In addition, we show that there can be both underprovision and overprovision in in aggregate investment under FRA. All these results hold qualitatively the same irrespective of whether management ownership is exogenous or endogenous. In the latter case, however, two additional effects arise: First, the aggregate investment decreases, making the pattern of FRA less clear-cut. Second, the CEO in the multi-segment firm can obtain a positive 'control rent', explaining why CEOs might want to create a diversified multi-segment firm to start out with.