On the Value of Influence Activities for Capital Budgeting

Laux, Volker

doi:10.2139/ssrn.349020

Cited by 8 publications

(6 citation statements)

References 26 publications

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“…The act of lobbying reveals to the firm which projects are worth defending, and the fear of fighting for the wrong project motivates the manager to gather more information in the first place. Similar to Laux (2008), we find that companies can improve profits by allowing the sales force to lobby for lower prices, which explains why lobbying is ubiquitous despite its seemingly wasteful nature. In this sense, our paper is also related to Hauser, Simester and Wernerfelt (1997), who discover that side payments need not reduce firm profits, and to Simester and Zhang (2010), who find that allowing bad products to continue can help companies motivate product managers.…”

Section: Introductionsupporting

confidence: 58%

“…One notable exception to this influence activities literature is Laux (2008), who argues that influence activities can benefit the firm's capital budgeting process. The act of lobbying reveals to the firm which projects are worth defending, and the fear of fighting for the wrong project motivates the manager to gather more information in the first place.…”

Section: Introductionmentioning

confidence: 99%

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Why Do Salespeople Spend So Much Time Lobbying for Low Prices?

Simester

Zhang

2014

Marketing Science

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In many companies there is persistent tension between the sales force and the managers responsible for pricing decisions. The sales force regularly proposes lowering prices, while the pricing managers focus on maintaining profit margins. What makes this surprising is that the firm controls the incentives of the sales force; it could use margin-based compensation to dissuade the sales force from lobbying for low prices. However, we show that the sales force's lobbying activities serve an important role. The firm may prefer to increase the cost of lobbying even though these costs represent a deadweight loss. The firm may also restrict how frequently a sales rep can lobby for low prices or penalize sales reps who lobby too frequently.

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Section: Introductionsupporting

confidence: 58%

Section: Introductionmentioning

confidence: 99%

Why Do Salespeople Spend So Much Time Lobbying for Low Prices?

Simester

Zhang

2014

Marketing Science

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“…For low-value projects the cost of providing information rents to the manager may lead the firm to abandon the project altogether. In a more recent paper, Laux (2008) argues that imposing influence costs on an internal project manager may improve capital budgeting. By requiring that the manager spend time and effort developing internal support for a project, the firm can implement a screening mechanism.…”

Section: Other Related Literaturementioning

confidence: 99%

“…The manager's willingness to engage in influence activities reveals his private information about the project's prospects. Bernardo, Cai and Luo (2001) and Laux (2008) both exploit an assumption that the manager enjoys private benefits from controlling more capital, reflecting a preference for "empire building" (see also Harris and Raviv 1998). As a result, the manager is biased in favor of the project.…”

Section: Other Related Literaturementioning

confidence: 99%

Why Are Bad Products So Hard to Kill?

Simester

Zhang

2010

Management Science

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It is puzzling that firms often continue to invest in product development projects when they should know that demand will be low. We argue that bad products are hard to kill because firms face an inherent conflict when designing managers' incentives. Rewarding success encourages managers to forge ahead even when demand is low. To avoid investing in low-demand products, the firm must also reward decisions to kill products. However, rewarding managers for killing products effectively undermines the rewards for success. The inability to resolve this tension forces the firm to choose between paying an even larger bonus for success and accepting continued investment in low-demand products. We explore the boundaries of this argument by analyzing how the timing of demand information affects product investment decisions.product development, managerial incentives, moral hazard, adverse selection, information acquisition

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“…Large companies, on the other hand, have better access to external funding (collateral, credit, etc. ) and, for the investment appraisal, use more formal methods such as capital budgeting (Laux 2008;Sandahl and Sjogren 2003;Verbeeten 2006).…”

Section: Introductionmentioning

confidence: 99%

External Factors Affecting Investment Decisions of Companies

Białowolski

Węziak‐Białowolska

2014

Economics

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In this paper, we attempt to investigate the importance of certain external factors on the investment decisions made by Polish companies. With the use of data from the tailor-made Survey on Receivables, we (1) examine factors influencing investment decisions of companies in Poland; (2) assess the relation between branch, company size and investment factors; (3) evaluate the importance of the investment factors; and (4) determine the relative influence of these factors on the company-level investment reductions. The results show that first, although the problem of payment delays is the most important single issue determining the investment decisions of Polish companies, its importance decreases when analysed simultaneously with other issues. Second, among the indicators selected for an assessment of investment decisions, two driving forces determine the investment decisions of Polish companiesnamely, macroeconomic factors and law-related factors, with the relative importance of the former lower than the latter. Third, there is a positive association between the importance of each of the two factors and the actual investment reductions, implying that among companies facing higher investment reductions, the importance of macroeconomic and law-related factors is higher. JEL D92 G11 G31

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On the Value of Influence Activities for Capital Budgeting

Cited by 8 publications

References 26 publications

Why Do Salespeople Spend So Much Time Lobbying for Low Prices?

Why Do Salespeople Spend So Much Time Lobbying for Low Prices?

Why Are Bad Products So Hard to Kill?

External Factors Affecting Investment Decisions of Companies

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