The purpose of this paper is to study capital budgeting in a setting where emphasis is on control over project selection. We construct a model of a multidivisional firm in which there are no constraints on investment and all projects have a positive net present value. Nevertheless, we show that it is optimal for the center to use relative project ranking in determining which projects are to be funded.
Journal of Accounting, Auditing, and Financevol.
11, (January 01, 1996):