Seminar – Regulatory impediments and the redeployability of physical assets: implications for investment decisions

Dr Timo Sohl, Pompeu Fabra University

This study examines how the internal redeployability of physical assets such as plants and stores can explain heterogeneity in investment responses to exogenous changes in rigidities imposed by regulation. Focusing on within-country variation in construction permitting procedures, we propose that an increase in construction impediments has a negative effect on establishment growth because more inefficient permitting and quality control systems can increase investment sunkness. We also argue that businesses are unequally exposed to construction impediments because their sunk costs are affected differently, proposing that redeployability of establishments across closely-related siblings lowers the performance threshold that justifies business expansion in the presence of construction impediments. Analyses of the establishment growth of multiunit chains that are part of multi-chain parents relative to stand-alone chains support our arguments.

Speaker bio

Timo Sohl is an Assistant Professor of Strategy at Pompeu Fabra University (UPF) and Affiliated Professor at the Barcelona Graduate School of Economics. His research focuses on corporate diversification and resource allocation in multi-business firms. He and his co-authors won the Best Corporate Strategy IG Proposal Award from the Strategic Management Society in 2018 and a Distinguished Paper Award of the Strategic Management Division (STR) from the Academy of Management in 2014. Timo received his PhD in Management from the University of St Gallen. Before joining UPF, he was a post-doctoral fellow at IESE Business School and a visiting fellow at Texas A&M University.