Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175352
Authors: 
Hoang, Daniel
Gatzer, Sebastian
Ruckes, Martin E.
Year of Publication: 
2018
Series/Report no.: 
KIT Working Paper Series in Economics 115
Abstract: 
We analyze a unique survey dataset to examine the (micro)foundations of capital allocation in firms. Firms employ systems of interconnected measures to counteract agency problems, including layers of approval, divisional budgets, reporting requirements, and compensation schemes. When making funding decisions, top management relies heavily on top-level, nonfinancial information. However, substantial parts of the capital budget do not require top management approval as firms trade off the benefits and costs of decentralization. Even firms with active internal capital markets tilt capital allocation toward relatively even distributions. Within-firm agency problems may result in divisions' restricted access to internal capital.
JEL: 
G31
G32
Document Type: 
Working Paper

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