Spillovers Inside Conglomerates: Incentives and Capital

Ran Duchin, Amir Goldberg and Denis Sosyura

The Review of Financial Studies, 2017, vol. 30, issue 5, 1696-1743

Abstract: Using hand-collected data on divisional managers at conglomerates, we find that a change in industry pay in one division generates spillovers on managerial pay in other divisions of the same firm. These spillovers arise only within the boundaries of a conglomerate. The intra-firm spillovers increase when conglomerates have excess cash and when managers have more influence over its distribution, but decline in the presence of strong governance. These spillovers are associated with weaker performance and lower firm value. Our evidence is consistent with simultaneous cross-subsidization via managerial compensation and capital budgets and suggests that these practices arise in similar firms.

JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (10)

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