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Decision Processes, Agency Problems, and Information: An Economic Analysis of Capital Budgeting Procedures
y M. Marino,n G. Matsusaka +1 more
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In this paper, the authors study the benefits and costs of several common budget procedures from the perspective of a model with agency and information problems, and show how the choice of a decision process depends on these two costs, and specifically on severity of the agency problem, quality of information, and project risk.Abstract:
Corporations use a variety of processes to allocate capital. This article studies the benefits and costs of several common budget procedures from the perspective of a model with agency and information problems. Processes that delegate aspects of the decision to the agent result in too many projects being approved, while processes in which the principal retains the right to reject projects cause the agent to strategically distort his information about project quality. We show how the choice of a decision process depends on these two costs, and specifically on severity of the agency problem, quality of information, and project risk.read more
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Internal competition for corporate resources and incentives in teams
Anthony M. Marino,Jan Zabojnik +1 more
TL;DR: In this article, the authors show that profit sharing combined with competition between these two teams for internal resources frequently solves the free-rider problem and endogenize the firm's organizational structure and show that in the presence of economies of scale, small firms tend to organize as unita~y firms, while large firms choose the multidivisional organizational form.
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Optimal Dynamic Capital Budgeting
Andrey Malenko,Andrey Malenko +1 more
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Capital Allocation and Delegation of Decision-Making Authority within Firms
TL;DR: The authors used a dataset of more than 1,000 chief executives and chief financial officers around the world to investigate the degree to which executives delegate financial decisions and the circumstances that drive variation in delegation.
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Delegation versus Veto in Organizational Games of Strategic Communication
TL;DR: The authors show that veto dominates delegation for any feasible divergence in preferences, if it induces the agent to shut down low quality proposals that he would otherwise implement and if such projects have sufficient likelihood.
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A Theory of Shareholder Approval and Proposal Rights
John G. Matsusaka,Oguzhan Ozbas +1 more
TL;DR: In this article, the authors develop a theory of how giving shareholders the right to approve and propose policies or directors affects firm value and show that when deterrence occurs, it is always by moving policy toward the position favored by the activist, even if this reduces shareholder wealth.