“Planning” Or Decentralization? Strategic Choices for Business Groups Under Economic Policy Uncertainty

This paper investigates the impact of EPU on the allocation of decision rights among business groups. We find that when EPU increases, business groups encourage decentralization in order to leverage information from lower-level managers. Furthermore, when the top managers of business groups have an information advantage, the negative relationship between EPU and business group centralization is less pronounced. Moreover, group decentralization promotes corporate innovation and technology acquisition propensity when EPU increases, which enhances firm value. Overall, the findings of this study empirically support traditional decentralization theory while also establishing a trade-off relationship between top managers' and decentralized information advantage.