Sibling Rivalry: Zero-Sum Dynamics of Managerial Power and Resource Allocation in Business Groups

Abstract

In the context of business groups, this study characterizes and tests managerial power as a zero-sum resource that must be actively pursued at the expense of other managers and affiliate firms. Affiliates compete against each other to capture shared resources, whose allocation not only depends on economic merits but also the manager’s power within the group. As a result, a negative shock to one manager can be beneficial to another affiliate by increasing its manager’s relative rank in the group’s managerial power hierarchy, leading to increased favoritism and value capture in the internal capital market. I find support for the “zero-sum power hypothesis” in the recent corruption trials against a key executive at the Samsung group. By parsing each sentence of the legal opinion delivered during trials, I identify a series of high frequency positive (negative) shocks that benefit (hurt) a rival affiliate. This study accounts for why the internal struggle for power is so ubiquitous, rather than being a highly qualified phenomenon limited to financially constrained firms, with novel implications to intra-organizational competition, family succession, and governance of business groups.