112 Pages Posted: 25 Mar 2008 Last revised: 30 Jan 2015
Date Written: March 7, 2013
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.
Keywords: Internal Capital Markets, Capital Budgeting, Managerial Power, Corporate Politics
JEL Classification: D80, G31, G34, L25
Suggested Citation: 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 68, 2013, 1577-1631 ; EFA 2007 Ljubljana Meetings Paper; AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=966325 or http://dx.doi.org/10.2139/ssrn.966325
By Amit Seru