Divisional Managers and Internal Capital Markets

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2012-08-06

Summary:

Editor’s Note: The following post comes to us from Ray Duchin of the Department of Finance at the University of Washington and Denis Sosyura of the Department of Finance at the University of Michigan.

In our paper, Divisional Managers and Internal Capital Markets, forthcoming in the Journal of Finance, we study the role of divisional managers in internal capital budgeting.

While the capital budgeting process is one of the most fundamental corporate decisions, introduced at the very beginning of virtually any finance textbook, we still know relatively little about this area of the inner workings of a firm. Our paper seeks to advance our knowledge of this corporate decision by studying the role of human capital in a firm’s capital budgeting and the involvement of managers at various levels of hierarchy. In particular, we construct a hand-collected dataset of divisional managers at the S&P 500 firms and examine the effect of managerial influence on investment decisions and firm value. We study managerial influence via both formal channels (e.g., managers’ board membership and seniority), and informal channels (e.g., managers’ social connections to the CEO via prior employment, education, and nonprofit organizations).

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Link:

http://blogs.law.harvard.edu/corpgov/2012/08/06/divisional-managers-and-internal-capital-markets/

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Blogs.law Aggregation Hub » The Harvard Law School Forum on Corporate Governance and Financial Regulation

Tags:

academic research empirical research management capital markets internal control denis sosyura ray duchin ran duchin

Authors:

R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation,

Date tagged:

08/06/2012, 10:30

Date published:

08/06/2012, 09:33