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Capital Allocation and Delegation of Decision-Making Authority within Firms

52 Pages Posted: 17 Mar 2010 Last revised: 3 Oct 2014

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); Duke Innovation & Entrepreneurship Initiative

Manju Puri

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Multiple version iconThere are 2 versions of this paper

Date Written: June 27, 2014

Abstract

We use a unique dataset of more than 1,000 Chief Executive Officers (CEOs) and Chief Financial Officers around the world to investigate the degree to which executives delegate financial decisions and the circumstances that drive variation in delegation. Delegation does not appear to be monolithic; instead, our results show that it varies across corporate policies and also varies with the personal characteristics of the CEO. We find that CEOs delegate decisions for which they need the most input and when they are overloaded. CEOs delegate financial decisions less when they are knowledgable (long-tenured or with a finance background). They delegate more when distracted by recent acquisitions, and they allocate capital based on “gut feel” and the personal reputation of the manager running a given division. Finally, corporate politics and corporate socialism affect capital allocation in European and Asian firms.

Keywords: Delegation, CEOs, executives, capital structure, mergers and acquisitions, payout, corporate investment, capital allocation

JEL Classification: L20, L22, G30, G32, G34, G35

Suggested Citation

Graham, John R. and Harvey, Campbell R. and Puri, Manju, Capital Allocation and Delegation of Decision-Making Authority within Firms (June 27, 2014). Available at SSRN: https://ssrn.com/abstract=1571527 or http://dx.doi.org/10.2139/ssrn.1571527

John Robert Graham (Contact Author)

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Manju Puri

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative

215 Morris St., Suite 300
Durham, NC 27701
United States

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