Subsidiary Managers’ Power and Capital Expenditure

This study examines how manager’s power affects capital expenditure in conglomerates, and how the firm’s corporate governance mitigates the influence of subsidiary managers’ informal power on capital expenditure. We conducted an empirical study using Taiwanese Business Group data, which includes 217 conglomerates, 453 subsidiaries and 2,921 firm-year observations, from 2005 to 2012. Expanding upon prior work, we examine four bases of a manager’s power: structural, ownership, expert and network power. We find that informal or personal power stemming from subsidiary managers’ expertise and network are more significant in influencing capital expenditure. Formal or positional power stemming from managers’ hierarchical position and subsidiary ownership had little or even negative effect on capital expenditure. We also find evidence that the impact of subsidiary manager’s power on capital expenditure is mitigated for those conglomerates with better corporate governance mechanisms.