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Managerial discretion and efficiency of internal capital markets

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  • Iskenderoglu, Cansu

Abstract

I use the staggered adoption of state-level antitakeover laws to provide causal evidence that managerial agency problems reduce the allocative efficiency of conglomerate firms. I find that increases in control slack following the passage of antitakeover laws reduces q-sensitivity of investment by 64%. The adverse impact of the laws appears mostly at conglomerate firms that benefited from disciplinary takeover threats prior to the passage of the laws, lacked alternative sources of pressure on management, or had the structural makings to fuel wasteful influence activities and power struggles among managers. These findings suggest that takeover threats impact the efficiency of resource allocation.

Suggested Citation

  • Iskenderoglu, Cansu, 2021. "Managerial discretion and efficiency of internal capital markets," Journal of Corporate Finance, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921001838
    DOI: 10.1016/j.jcorpfin.2021.102061
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    More about this item

    Keywords

    Internal capital markets; Antitakeover laws; Corporate investment; Allocation of resources; Agency problems;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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