Opening the Black Box: Internal Capital Markets and Managerial Power

Markus Glaser, Florencio Lopez-de-Silanes () and Zacharias Sautner

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the internal capital markets of a multinational conglomerate to determine whether more powerful unit managers enjoy larger allocations. We use a new dataset of planned and actual allocations to business units to show that, although all unit managers systematically over-budget capital expenditures, more powerful and better connected managers obtain larger shares of cash windfalls and increase investment about 40% more than their less powerful peers. Results survive robustness tests and are not explained by differences in managerial abilities or an endogenous allocation of managers across units. Our findings support bargaining-power theories and provide direct evidence of a source of capital allocation frictions.

Keywords: Internal Capital Markets; Corporate Investment; Capital Budgeting; Managerial Power; Agency; Influence Activities; Corporate Politics (search for similar items in EconPapers)
JEL-codes: D21 G31 G34 L22 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-bec and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Opening the Black Box: Internal Capital Markets and Managerial Power (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:28488

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