arbiter
JournalsAccount

Subsidiary Financing: Risk Shifting as a Commitment Device

Gyöngyi Lóránth et al.

Review of Corporate Finance Studies2026https://doi.org/10.1093/rcfs/cfag005article
AJG 3ABDC A*
Weight
0.50

Abstract

We study how firms can design their organizational structures to overcome dynamic commitment problems when entering new markets. A manager exerts costly effort to first develop and subsequently manage an investment opportunity. Ex post, the firm underinvests in projects that generate high management rents. However, the prospect of those rents helps offset the manager’s initial project development cost, making ex ante commitment to invest optimal. Levered subsidiaries mitigate this time-consistency problem by introducing risk-shifting incentives that counteract underinvestment. Subsidiaries are most valuable for projects that are costly to develop, have moderate management costs, and yield returns uncorrelated with existing business. (JEL G32, G34, L22)

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1093/rcfs/cfag005

Or copy a formatted citation

@article{gyöngyi2026,
  title        = {{Subsidiary Financing: Risk Shifting as a Commitment Device}},
  author       = {Gyöngyi Lóránth et al.},
  journal      = {Review of Corporate Finance Studies},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1093/rcfs/cfag005},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Subsidiary Financing: Risk Shifting as a Commitment Device

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.