Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56198
Authors: 
Inderst, Roman
Müller, Holger M.
Wärneryd, Karl
Year of Publication: 
2000
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 392
Abstract: 
In an internal capital market, individual departments may compete for a share of the firm's budget by engaging in wasteful influence activities. We show that firms with more levels of hierarchy may experience lower influence costs than less hierarchical firms, even though the former provide more opportunities for exerting influence. We further argue that the widely discussed change from the U-form to the M-form organization in the 1920s may be related to attempts to limit divisional lobbying. In particular, we show that influence costs under the U-form organization are lower than under the M-form organization if and only if the firm's operations are sufficiently small.
Subjects: 
Hierarchies
influence activities
internal capital markets
U-form vs. M-form organization
JEL: 
D74
G31
G34
Document Type: 
Working Paper

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