Division Manager Lobbying Power and the Allocation of Capital


  • The authors thank Cynthia J. Campbell, editor, an anonymous referee, Eric Powers, Greg Niehaus, and seminar participants at the 2004 FMA meetings for their helpful comments.

* Corresponding author: Furman University, 3300 Poinsett Highway, Greenville, SC 29613; Phone: (864) 294-3312; Fax: (864) 294-2990; E-mail: thomas.smythe@furman.edu


We investigate whether division manager lobbying power affects the allocation of capital in multi-divisional firms. We find that firm-level disparities in division manager lobbying power (measured by tenure, time-in-position, board membership, and top executive status) affect capital allocation in expected ways. Managers with greater relative lobbying power compete for capital expenditures from a position of strength. Evidence is also provided which suggests that division manager ownership mitigates lobbying efforts. Furthermore, disparity in division manager lobbying power is associated with lower firm excess value. These results support the view that division manager influence activities impact the operation of internal capital markets.