Managerial discretion and efficiency of internal capital markets

Cansu Iskenderoglu

Journal of Corporate Finance, 2021, vol. 70, issue C

Abstract: I use the staggered adoption of state-level antitakeover laws to provide causal evidence that managerial agency problems reduce the allocative efficiency of conglomerate firms. I find that increases in control slack following the passage of antitakeover laws reduces q-sensitivity of investment by 64%. The adverse impact of the laws appears mostly at conglomerate firms that benefited from disciplinary takeover threats prior to the passage of the laws, lacked alternative sources of pressure on management, or had the structural makings to fuel wasteful influence activities and power struggles among managers. These findings suggest that takeover threats impact the efficiency of resource allocation.

Keywords: Internal capital markets; Antitakeover laws; Corporate investment; Allocation of resources; Agency problems (search for similar items in EconPapers)
JEL-codes: D21 D23 G31 G34 G38 K22 L51 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921001838

DOI: 10.1016/j.jcorpfin.2021.102061

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