Capital Allocation and Delegation of Decision-Making Authority within Firms

53 Pages Posted: 30 Aug 2011 Last revised: 19 Jun 2022

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Manju Puri

Duke University - Fuqua School of Business; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: August 2011

Abstract

We survey more than 1,000 CEOs and CFOs to understand how capital is allocated, and decision-making authority is delegated, within firms. We find that CEOs are least likely to share or delegate decision-making authority in mergers and acquisitions, relative to delegation of capital structure, payout, investment, and capital allocation decisions. We also find that CEOs are more likely to delegate decision authority when the firm is large or complex. Delegation is less likely when the CEO is particularly knowledgeable about a project, when the CEO has an MBA degree or long tenure, and when the CEO's pay is tilted towards incentive compensation. We study capital allocation in detail and learn that most companies allocate funds across divisions using the net present value rule, the reputation of the divisional manager, the timing of a project‟s cash flows, and senior management's "gut feel." Corporate politics and corporate socialism are more important allocation criteria in foreign countries than in the U.S.

Suggested Citation

Graham, John Robert and Harvey, Campbell R. and Puri, Manju, Capital Allocation and Delegation of Decision-Making Authority within Firms (August 2011). NBER Working Paper No. w17370, Available at SSRN: https://ssrn.com/abstract=1919444

John Robert Graham (Contact Author)

Duke University ( email )

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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Manju Puri

Duke University - Fuqua School of Business ( email )

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United States
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NBER

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