Divisional managers and internal capital markets

Ran Duchin, Denis Sosyura

Research output: Contribution to journalArticlepeer-review

121 Scopus citations


Using hand-collected data on divisional managers at S&P 500 firms, we study their role in internal capital budgeting. Divisional managers with social connections to the CEO receive more capital. Connections to the CEO outweigh measures of managers' formal influence, such as seniority and board membership, and affect both managerial appointments and capital allocations. The effect of connections on investment efficiency depends on the tradeoff between agency and information asymmetry. Under weak governance, connections reduce investment efficiency and firm value via favoritism. Under high information asymmetry, connections increase investment efficiency and firm value via information transfer.

Original languageEnglish (US)
Pages (from-to)387-429
Number of pages43
JournalJournal of Finance
Issue number2
StatePublished - Apr 2013
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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