Corporate capital allocation: A behavioral perspective

Strategic Management Journal

Volumn 32, Issue 13, 2011, Pages 1465-1483

  Bardolet, David ^a   Fox, Craig R ^b   Lovallo, Dan ^c  

^a BOCCONI UNIVERSITY   (Italy)

^b UNIVERSITY OF CALIFORNIA   (United States)

^c UNIVERSITY OF SYDNEY   (Australia)

Author keywords

capital allocation; na ve diversification; partition dependence

Indexed keywords

ARCHIVAL DATA; BUSINESS UNITS; CAPITAL ALLOCATION; CAPITAL INVESTMENT; CROSS-SUBSIDIZATION; EXPERIMENTAL STUDIES; INVESTMENT DECISIONS; MULTIBUSINESS FIRMS; PARTITION DEPENDENCE; PRINCIPAL AGENTS;

INDUSTRY;

INVESTMENTS;

EID: 80455141670     PISSN: 01432095     EISSN: 10970266     Source Type: Journal    
DOI: 10.1002/smj.966     Document Type: Article

References (42)

1. Benartzi S, Thaler R,. 2001. Nave diversification strategies in retirement saving plans. American Economic Review 91 (1): 79-98. (Pubitemid 33594471)
2. Berger P, Ofek E,. 1995. Diversification's effect on firm value. Journal of Financial Economics 37: 39-65.
3. Bernardo AE, Cai H, Luo J,. 2004. Capital budgeting in multi-division firms: information, agency, and incentives. Review of Financial Studies 17: 739-767. (Pubitemid 39159658)
4. Bernardo AE, Cai H, Luo J,. 2006. A theory of socialistic internal capital markets. Journal of Financial Economics 80: 485-509. (Pubitemid 43705624)
5. Bernardo AE, Luo J, Wang J,. 2006. A theory of socialistic internal capital markets. Journal of Financial Economics 80: 485-509. (Pubitemid 43705624)
6. Bower JL,. 1970. Managing the Resource Allocation Process. Harvard Business School Press: Boston, MA.
7. Brown C,. 1999. Do the right thing: diverging effects of accountability in a managerial context. Marketing Science 18: 230-246.
8. Dierickx I, Cool K,. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science 35: 1504-1511.
9. Fox CR, Clemen RT,. 2005. Subjective probability assessment in decision analysis: partition dependence and bias toward the ignorance prior. Management Science 51: 1417-1432. (Pubitemid 41394246)
10. Fox CR, Ratner RK, Lieb D,. 2005. How subjective grouping of options influences choice and allocation: diversification bias and the phenomenon of partition dependence. Journal of Experimental Psychology: General 134: 538-551. (Pubitemid 41759651)
11. Garbuio M, Lovallo D, Viguerie P,. 2009. How companies make good decisions: McKinsey Global Survey Results. McKinsey Quarterly. January: 3.
12. Gilbert CG, Bower JL,. 2005. From Resource Allocation to Strategy. Oxford University Press: New York.
13. Graham J, Harvey C,. 2001. The theory and practice of corporate finance: evidence from the field. Journal of Financial Economics 60: 187-243. (Pubitemid 33623432)
14. Harris M, Raviv A,. 1996. The capital budgeting process: incentives and information. Journal of Finance 51 (4): 1139-1174.
15. Harris M, Raviv A,. 1998. Capital budgeting and delegation. Journal of Financial Studies 50 (3): 259-289.
16. Heath C, Larrick RP, Klayman J,. 1998. Cognitive repairs: how organizational practice can compensate for individual shortcomings. Research in Organizational Behavior 20: 1-37.
17. Kahneman D,. 2003. A perspective on judgment and choice: mapping bounded rationality. American Psychologist 58: 697-720. (Pubitemid 37340820)
18. Kaplan S, Zingales L,. 1997. Do investment-cash flow sensitivities provide a useful measure of financing constraints? Quarterly Journal of Economics 112: 169-215.
19. Lamont O,. 1997. Cash flow and investment: evidence from internal capital markets. Journal of Finance 52: 83-109. (Pubitemid 127343964)
20. Lang L, Stulz R,. 1994. Tobin's q, diversification, and firm performance. Journal of Political Economy 102 (6): 1248-1280.
21. Langer T, Fox CR,. 2011. Partition-dependence, unit-dependence, and procedure-dependence in investment allocation: an experimental investigation. Unpublished manuscript, University of Münster, Germany.
22. Lerner JS, Tetlock PE,. 1999. Accounting for the effects of accountability. Psychological Bulletin 125: 255-275.
23. Leung K, Park H,. 1986. Effects of interactional goal of choice of allocation rule: a cross-national study. Organizational Behavior and Human Decision Processes 37: 111-120.
24. Messick DM,. 1992. Equality as a decision heuristic. In Psychological Issues in Distributive Justice, Mellers B, (ed). Cambridge University Press: New York.
25. Meyer M, Milgrom P, Roberts J,. 1992. Organizational prospects, influence costs, and ownership changes. Journal of Economics and Management Strategy 1: 9-35.
26. Ozbas O, Scharfstein D,. 2010. Evidence on the dark side of internal capital markets. Review of Financial Studies 23 (2): 581-599.
27. Palepu K,. 1985. Diversification strategy, profit, performance, and the entropy measure. Strategic Management Journal 6 (3): 239-255.
28. Perfect SB, Wiles KW,. 1994. Alternative constructions of Tobin's q: an empirical comparison. Journal of Empirical Finance 1: 313-341.
29. Peteraf MA,. 1993. The cornerstones of competitive advantage: a resource-based view. Strategic Management Journal 14 (3): 179-191.
30. Rajan R, Servaes H, Zingales L,. 2000. The cost of diversity: the diversification discount and inefficient investment. Journal of Finance 55: 35-80.
31. Read D, Loewenstein G,. 1995. Diversification bias: explaining the discrepancy in variety seeking between combined and separated choices. Journal of Experimental Psychology: Applied 1: 34-49.
32. Rumelt RP,. 1974. Strategy, Structure, and Economic Performance. Harvard Business School Press: Boston, MA.
33. Samuelson W, Zeckhauser R,. 1988. Status quo bias in decision making. Journal of Risk and Uncertainty 1 (1): 7-59.
34. Scharfstein D, Stein J,. 2000. The dark side of internal capital markets: divisional rent-seeking and inefficient investment. Journal of Finance 55 (6): 2537-2564.
35. Sonneman U, Camerer CF, Fox CR, Langer T,. 2011. Psychological biases affect economic market prices. Unpublished manuscript, University of Münster, Germany.
36. Stake JT,. 1985. Exploring the basis of sex-differences in third-party allocations. Journal of Personality and Social Psychology 44: 410-418.
37. Stein J,. 2003. Agency, information, and corporate investment. In Handbook of the Economics of Finance, Constantinides GM, Harris M, Stulz R, (eds). Elsevier Science: Amsterdam, the Netherlands.
38. Stein J, Scharfstein D, Gertner R,. 1994. Internal versus external capital markets. NBER working paper 4776, National Bureau of Economic Research: Cambridge, MA.
39. Strack F, Mussweiler T,. 1997. Explaining the enigmatic anchoring effect: mechanisms of selective accessibility. Journal of Personality and Social Psychology 73: 437-446.
40. Tetlock PE, Skitka L, Boettger R,. 1989. Social and cognitive strategies of coping with accountability: conformity, complexity, and bolstering. Journal of Personality and Social Psychology 57: 632-641.
41. Weber M, Eisenführ F, von Winterfeldt D,. 1988. The effect of splitting attributes in multiattribute utility measurement. Management Science 34: 431-445.
42. Wulf J,. 2005. Influence and inefficiency in the internal capital market. Working paper, Harvard University: Cambridge, MA.