Capital Allocation and Delegation of Decision-Making Authority within Firms

John R. Graham, Campbell R. Harvey and Manju Puri

No 17370, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We survey more than 1,000 CEOs and CFOs to understand how capital is allocated, and decision-making authority is delegated, within firms. We find that CEOs are least likely to share or delegate decision-making authority in mergers and acquisitions, relative to delegation of capital structure, payout, investment, and capital allocation decisions. We also find that CEOs are more likely to delegate decision authority when the firm is large or complex. Delegation is less likely when the CEO is particularly knowledgeable about a project, when the CEO has an MBA degree or long tenure, and when the CEO's pay is tilted towards incentive compensation. We study capital allocation in detail and learn that most companies allocate funds across divisions using the net present value rule, the reputation of the divisional manager, the timing of a project‟s cash flows, and senior management's "gut feel." Corporate politics and corporate socialism are more important allocation criteria in foreign countries than in the U.S.

JEL-codes: G30 G32 G34 L20 L22 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-bec and nep-ppm
Note: CF
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Citations: View citations in EconPapers (19)

Published as Graham, John R. & Harvey, Campbell R. & Puri, Manju, 2015. "Capital allocation and delegation of decision-making authority within firms," Journal of Financial Economics, Elsevier, vol. 115(3), pages 449-470.

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