Spillovers Inside Conglomerates: Incentives and Capital

Ran Duchin, Amir Goldberg, Denis Sosyura

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Using hand-collected data on divisional managers at conglomerates, we find that a change in industry pay in one division generates spillovers on managerial pay in other divisions of the same firm. These spillovers arise only within the boundaries of a conglomerate. The intrafirm spillovers increase when conglomerates have excess cash and when managers have more influence over its distribution, but decline in the presence of strong governance. These spillovers are associated with weaker performance and lower firm value. Our evidence is consistent with simultaneous cross-subsidization via managerial compensation and capital budgets and suggests that these practices arise in similar firms.

Original languageEnglish (US)
Pages (from-to)1696-1743
Number of pages48
JournalReview of Financial Studies
Volume30
Issue number5
DOIs
StatePublished - Jan 1 2017
Externally publishedYes

Fingerprint

Conglomerate
Incentives
Spillover
Managers
Cash
Cross-subsidization
Governance
Managerial compensation
Firm value
Industry

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Spillovers Inside Conglomerates : Incentives and Capital. / Duchin, Ran; Goldberg, Amir; Sosyura, Denis.

In: Review of Financial Studies, Vol. 30, No. 5, 01.01.2017, p. 1696-1743.

Research output: Contribution to journalArticle

Duchin, Ran ; Goldberg, Amir ; Sosyura, Denis. / Spillovers Inside Conglomerates : Incentives and Capital. In: Review of Financial Studies. 2017 ; Vol. 30, No. 5. pp. 1696-1743.
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