Research on the Impact of Divisions’ Lobbying Activity on Efficiency of Internal Capital Market in Diversified Enterprises

Investment decision-making effectiveness depends on the effectiveness of capital allocation, which is affected by division lobbying activity. This paper firstly analyzes the result of division manger’s lobbying activity in capital allocative decision-making using game theory. The result shows deviations from efficient investment decision-making (under-investment) under the conditions of information asymmetry. Division manger’s lobbying activity is either exacerbating the deviation from the effective investment (under-investment and excess investment), or making up for the information asymmetry (effective investment). Despite previous literatures, this paper shows that division mangers’ lobbying activities in capital allocation decision-making may not always result in negative consequences (under-investment and excess investment), but also may have positive results (effective investment).