Socialism and Intrafirm Asset Allocation
University of Berne - Institute for Financial Management
Claudio F. Loderer
University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI); Swiss Finance Institute
University of Alberta - Department of Finance and Statistical Analysis
October 14, 2003
We rely on a survey of Swiss firms to document deviation from first-best for reasons of internal "fairness" when allocating resources. This "socialist" practice is more widespread in smaller than in larger firms. It ignores the reputation and past performance of the managers who apply for funding, but takes into account their hierarchical position and their past use of resources. Socialism is only partially explained by concerns about empire building and managerial optimism, and it is not meant to benefit shareholders.
Number of Pages in PDF File: 30
Keywords: Capital budgeting, Internal socialism, Empire building, Managerial optimism, Performance
JEL Classification: G31, L22, M14working papers series
Date posted: April 14, 2003
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