Internal capital markets and CEO power
This paper examines the relationship between the organizational hierarchy at the highest management level and the allocation of internal financial resources within a firm. A measure of CEO influence is devised that reflects the extent of CEO power over decisions in the firm. I find that diversified...
Saved in:
| Main Author: | |
|---|---|
| Format: | article |
| Published: |
2007
|
| Online Access: | http://hdl.handle.net/10725/5920 http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php http://www.freepatentsonline.com/article/Journal-Academy-Business-Economics/172011770.html |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | This paper examines the relationship between the organizational hierarchy at the highest management level and the allocation of internal financial resources within a firm. A measure of CEO influence is devised that reflects the extent of CEO power over decisions in the firm. I find that diversified firms where decisions are heavily polarized towards the CEO allocate their resources less efficiently than firms where decisions are made by a coalition of top executives. This finding suggests that a diversified firm headed by one powerful CEO is subject to higher effects of rent-seeking behavior and internal power struggles from lower level management than is a coalition of executives making investment decisions. The implications of this finding are consistent with the argument that the diversification discount is a consequence of agency problems existing between layers of management within the firm. |
|---|