We conceptualize capital markets in terms of resource access and governance, and argue that more developed capital markets facilitate firm restructuring through more effective provision of capital and governance of transactions. We then develop a contingency model that specifies that the effects of capital market development on restructuring vary by (1) types of restructuring, (2) the nature of the economic environments, and (3) firms’ access to resources. We evaluate a broad range of restructuring actions among independent firms and business group affiliates in Singapore and South Korea before and during the economic shock of 1998–1999. Results support our predictions of the impact of capital market development and of contingencies, and highlight the value of incorporating an external capital markets perspective to complement internally focused theoretical explanations for firm restructuring.
Research Summary: Managers at multiple levels of a firm influence resource allocation but most research focuses on senior rather than middle managers. We study involvement of middle managers in decision making, focusing on how rewards and controls shape resource allocation. We argue that higher income growth uncertainty (rewards) and lower monitoring (controls) increase resource allocation most strongly when middle managers are more involved in decisions. We test the arguments for ATM and bank branch allocations in Indian banks from 2011 to 2014. We assess causal mechanisms by comparing more and less favorable conditions for allocation, as well as considering a poststudy exogenous shock. The results suggest that the rewards and controls have different associations with resource allocation depending on the involvement of senior and middle managers. Managerial Summary: The study examines how rewards and controls shape resource allocation decisions by middle managers, focusing on rewards arising from uncertainty about employee income and controls based on monitoring. The work suggests that rewards and controls that influence resource allocation by one level of managers may have less effect for another level. Hence, a firm's plans for resource deployment need to include rewards and controls that are relevant for both senior and middle managers. K E Y W O R D S agency problems, incentives, middle managers, resource allocation, senior managers
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