Division Manager Lobbying Power and the Allocation of Capital

27 Pages Posted: 20 Jan 2009

See all articles by Thomas I. Smythe

Thomas I. Smythe

Furman University

Chris R. McNeil

affiliation not provided to SSRN

Abstract

We investigate whether division manager lobbying power affects the allocation of capital in multi-divisional firms. We find that firm-level disparities in division manager lobbying power (measured by tenure, time-in-position, board membership, and top executive status) affect capital allocation in expected ways. Managers with greater relative lobbying power compete for capital expenditures from a position of strength. Evidence is also provided which suggests that division manager ownership mitigates lobbying efforts. Furthermore, disparity in division manager lobbying power is associated with lower firm excess value. These results support the view that division manager influence activities impact the operation of internal capital markets.

Suggested Citation

Smythe, Thomas I. and McNeil, Christopher R., Division Manager Lobbying Power and the Allocation of Capital. Financial Review, Vol. 44, Issue 1, pp. 59-85, February 2009. Available at SSRN: https://ssrn.com/abstract=1330180 or http://dx.doi.org/10.1111/j.1540-6288.2008.00210.x

Thomas I. Smythe

Furman University ( email )

Greenville, SC
United States

Christopher R. McNeil

affiliation not provided to SSRN

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