Abstract

http://ssrn.com/abstract=966325
 
 

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Opening the Black Box: Internal Capital Markets and Managerial Power


Markus Glaser


Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management)

Florencio Lopez de Silanes


EDHEC Business School; National Bureau of Economic Research (NBER); Tinbergen Institute

Zacharias Sautner


Frankfurt School of Finance & Management gemeinnützige GmbH

March 7, 2013

Journal of Finance, Forthcoming
EFA 2007 Ljubljana Meetings Paper
AFA 2009 San Francisco Meetings Paper

Abstract:     
We analyze the internal capital markets of a multinational conglomerate, using a unique panel data set of planned and actual allocations to business units and a survey of unit CEOs. Following cash windfalls, more powerful managers obtain larger allocations and increase investment substantially more than their less connected peers. We identify cash windfalls as a source of misallocation of capital, as more powerful managers overinvest and their units exhibit lower ex-post performance and productivity. These findings contribute to our understanding of frictions in resource allocation within firms and point to an important channel through which power may lead to inefficiencies.

Number of Pages in PDF File: 112

Keywords: Internal Capital Markets, Capital Budgeting, Managerial Power, Corporate Politics

JEL Classification: D80, G31, G34, L25

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Date posted: March 25, 2008 ; Last revised: February 4, 2014

Suggested Citation

Glaser, Markus and Lopez de Silanes, Florencio and Sautner, Zacharias, Opening the Black Box: Internal Capital Markets and Managerial Power (March 7, 2013). Journal of Finance, Forthcoming; EFA 2007 Ljubljana Meetings Paper; AFA 2009 San Francisco Meetings Paper. Available at SSRN: http://ssrn.com/abstract=966325 or http://dx.doi.org/10.2139/ssrn.966325

Contact Information

Markus Glaser (Contact Author)
Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management) ( email )
Schackstraße 4
Munich, 80539
Germany
Florencio Lopez de Silanes
EDHEC Business School ( email )
393, Promenade des Anglais BP 3116
Nice, 06202
France
+33 (0) 4 93 18 78 07 (Phone)
+33 (0) 4 93 18 78 41 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tinbergen Institute ( email )
Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
Zacharias Sautner
Frankfurt School of Finance & Management gemeinnützige GmbH ( email )
Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany
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