Subsidiary Managers’ Power and Capital Expenditure

44 Pages Posted: 18 Aug 2015

See all articles by Jun Shao

Jun Shao

Shanghai Lixin University of Accounting and Finance

Anne Wu

National Chengchi University (Taipei)

Wai Fong Boh

Nanyang Technological University

Cheng-Jen Huang

Tunghai University - Department of Accounting

Date Written: August 17, 2015

Abstract

This study examines how manager’s power affects capital expenditure in conglomerates, and how the firm’s corporate governance mitigates the influence of subsidiary managers’ informal power on capital expenditure. We conducted an empirical study using Taiwanese Business Group data, which includes 217 conglomerates, 453 subsidiaries and 2,921 firm-year observations, from 2005 to 2012. Expanding upon prior work, we examine four bases of a manager’s power: structural, ownership, expert and network power. We find that informal or personal power stemming from subsidiary managers’ expertise and network are more significant in influencing capital expenditure. Formal or positional power stemming from managers’ hierarchical position and subsidiary ownership had little or even negative effect on capital expenditure. We also find evidence that the impact of subsidiary manager’s power on capital expenditure is mitigated for those conglomerates with better corporate governance mechanisms.

Keywords: Corporate Governance; Power; Capital Expenditure Efficiency

JEL Classification: G32, G34, M10

Suggested Citation

Shao, Jun and Wu, Anne and Boh, Wai Fong and Huang, Cheng-Jen, Subsidiary Managers’ Power and Capital Expenditure (August 17, 2015). AAA 2016 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2646294 or http://dx.doi.org/10.2139/ssrn.2646294

Jun Shao

Shanghai Lixin University of Accounting and Finance ( email )

Anne Wu

National Chengchi University (Taipei) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Wai Fong Boh

Nanyang Technological University ( email )

S3 B2A-14 Nanyang Avenue
Singapore, 639798
Singapore

Cheng-Jen Huang (Contact Author)

Tunghai University - Department of Accounting ( email )

181, Sec. 3, Taichungkan Rd.
Taichung, Taiwan 40704
Taiwan

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