Abstract

http://ssrn.com/abstract=1963902
 


 



On the Importance of Internal Control Systems in the Capital Allocation Decision: Evidence from SOX


David De Angelis


Rice University - Jesse H. Jones Graduate School of Business

April 21, 2014


Abstract:     
I examine the effect of information frictions across corporate hierarchies on internal capital allocation decisions using the Sarbanes-Oxley Act (SOX) as a quasi-natural experiment. I find that after SOX, the capital allocation decision in conglomerates is more sensitive to the performance reported by their business segments. The effects are most pronounced in conglomerates that are prone to information problems and agency conflicts within the organization. In addition, conglomerates’ productivity and market value relative to stand-alone firms increase after SOX. These results support the argument that inefficiencies in the capital allocation process are partly due to information frictions across corporate hierarchies.

Number of Pages in PDF File: 45

Keywords: Internal Capital Allocation, Internal Capital Markets, Internal Control Systems, Asymmetric Information, Agency Conflicts, Sarbanes-Oxley Act

JEL Classification: D22, D82, G30, G31, G34, G38

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Date posted: November 25, 2011 ; Last revised: April 22, 2014

Suggested Citation

De Angelis, David, On the Importance of Internal Control Systems in the Capital Allocation Decision: Evidence from SOX (April 21, 2014). Available at SSRN: http://ssrn.com/abstract=1963902 or http://dx.doi.org/10.2139/ssrn.1963902

Contact Information

David De Angelis (Contact Author)
Rice University - Jesse H. Jones Graduate School of Business ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
HOME PAGE: http://www.de-angelis.com
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