Managerial Discretion and Efficiency of Internal Capital Markets

42 Pages Posted: 7 Nov 2018 Last revised: 28 Apr 2019

See all articles by Cem Demiroglu

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics

Cansu Iskenderoglu

Ozyegin University

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: April 2019

Abstract

This paper uses the staggered adoption of state-level antitakeover laws to provide causal evidence on whether managerial agency problems affect the allocative efficiency of conglomerate firms. Increases in control slack lead to sharp declines in the Q-sensitivity of investment. The effects are more pronounced for conglomerate firms under stronger pressure from the corporate control market prior to the adoption of antitakeover laws as well as for conglomerate firms with greater financial slack, dispersion of ownership, and diversity of investment opportunities. Our findings establish a novel organizational channel through which takeover threats impact the efficiency of resource allocation in the economy.

Keywords: internal capital markets, antitakeover laws, corporate investment, allocation of resources, agency problems

JEL Classification: D21, D23, G31, G34, G38, K22, L51

Suggested Citation

Demiroglu, Cem and Iskenderoglu, Cansu and Ozbas, Oguzhan, Managerial Discretion and Efficiency of Internal Capital Markets (April 2019). Available at SSRN: https://ssrn.com/abstract=3278271 or http://dx.doi.org/10.2139/ssrn.3278271

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics ( email )

Koc University
Sariyer
Istanbul, 34450
Turkey
90-212-338-1620 (Phone)
90-212-338-1653 (Fax)

HOME PAGE: http://https://sites.google.com/site/cemdemiroglu/

Cansu Iskenderoglu

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

Oguzhan Ozbas (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
101
Abstract Views
735
rank
281,868
PlumX Metrics