Delegation of Decision Rights and Inertia in Capital Reallocation

Nauman Asghar and Tomasz Obloj
Additional contact information
Nauman Asghar: HEC Paris
Tomasz Obloj: Indiana University

No 1453, HEC Research Papers Series from HEC Paris

Abstract: In this paper, we investigate the antecedents of inertia in capital allocation decisions in organizations. Despite the importance of flexible capital reallocation, empirical evidence points to remarkably high levels of stability in these decisions. Adopting a behavioral perspective, we focus on information processing demands faced by boundedly rational decision makers as a driver of such inertia. In particular, we argue that centralization of decision rights, which increases the information processing demands on relevant decision makers, results in an increased inertia in capital reallocations. To empirically test our proposition and explore the causal effect of centralization on reallocation flexibility, we take advantage of an exogenous variation in decision rights among municipalities located in the state of Illinois in the US. Our findings indicate that the delegation of decision rights for capital allocation significantly decreases inertia in reallocation decisions. Additional analyses further provide evidence that a likely mechanism explaining our findings is that of decentralization reducing information processing load on relevant decision makers.

Keywords: Capital reallocation; information processing; organizational structure; inertia; fuzzy regression discontinuity design (search for similar items in EconPapers)
JEL-codes: L00 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-03-23
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4014546 Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1453

DOI: 10.2139/ssrn.4014546

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 1 Rue de la Libération, 78350 Jouy-en-Josas, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().