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Division Manager Lobbying Power and the Allocation of Capital
Author(s) -
McNeil Chris R.,
Smythe Thomas I.
Publication year - 2009
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2008.00210.x
Subject(s) - division (mathematics) , capital allocation line , position (finance) , capital (architecture) , business , power (physics) , value (mathematics) , monetary economics , microeconomics , industrial organization , economics , finance , computer science , profit (economics) , physics , arithmetic , mathematics , archaeology , quantum mechanics , machine learning , history
We investigate whether division manager lobbying power affects the allocation of capital in multi‐divisional firms. We find that firm‐level disparities in division manager lobbying power (measured by tenure, time‐in‐position, board membership, and top executive status) affect capital allocation in expected ways. Managers with greater relative lobbying power compete for capital expenditures from a position of strength. Evidence is also provided which suggests that division manager ownership mitigates lobbying efforts. Furthermore, disparity in division manager lobbying power is associated with lower firm excess value. These results support the view that division manager influence activities impact the operation of internal capital markets.