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Career Concerns and Resource Allocation in Conglomerates

出版	SSRN, 2002
URL	http://books.google.com.hk/books?id=M04euAAACAAJ&hl=&source=gbs_api

註釋This paper investigates the resource allocation decisions in conglomerates when managers are motivated by career concerns. The output of a conglomerate division is determined by the unknown ability of corporate management, the capital employed in the division, and intangible resources that the management allocates to the division. While capital allocation across divisions is fully observable and contractible, the allocation of intangible resources is not. The divisions differ in how informative their cash flows are about managerial ability. Corporate management, influenced by career concerns, seeks to maximize perceived ability. In this set up, we show that it is in the interest of management to overallocate intangible resources to the more informative divisions in order to increase the market's perception of its ability. Anticipating this bias, it is in the firm's owners' interest to also overallocate capital to the more informative divisions. To the extent that industries with lower cash flow informativeness have higher q-ratios, this inefficiency results in a form of corporate socialism. Value loss due to the allocational inefficiency increases with the difference in informativeness and the correlation between the divisional cash flows. The model highlights a cost of segment reporting and tracking stocks, namely, that they create avenues for managers to distort their perceived ability at the expense of investors.