Workshop Series: Denis Sosyura
Divisional Managers and Internal Capital Markets (by Ran Duchin and Denis Sosyura)
Using hand-collected data on divisional managers at the S&P 500 firms, we provide one of the first studies of their role in internal capital budgeting. Divisional managers with connections to the CEO receive more capital. Managers' informal connections, such as social ties to the CEO, outweigh measures of managers' formal influence, such as board membership and seniority, and affect both the appointment of managers and subsequent capital allocations to their divisions. The impact of connections on investment efficiency depends on the tradeoff between agency and information asymmetry. When governance is weak, connections reduce investment efficiency and erode firm value by fostering favoritism. When information asymmetry is high, managerial ties increase investment efficiency and firm value by facilitating information transfer. Overall, we provide novel evidence on the role of formal and informal managerial influence inside conglomerates.
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Denis Sosyura is an Assistant Professor of Finance at the Ross School of Business at the University of Michigan. He joined the University of Michigan in 2008 after receiving his PhD in Finance at Yale University. His research interests include empirical corporate finance, political economy, and financial media. His recent projects have focused on the influence of banks' political activism on the distribution of TARP capital, the effect of managerial politics on internal capital allocation, and the management of financial media during key corporate events.