Capital budgeting and managerial empire building

I examine how a company's headquarters use an empire-building manager's report about decision-relevant private information to make capital budgeting decisions and compensate the manager. To this end, construct model comprising (principal) manager (agent), who reports on investment project's expected profitability. identify optimal sizes compensation payments, where trade off managerial rents – arising from benefits inducing favour overinvestment for efficiency. The counteract desire with distortions in form of underinvestment (or overinvestment) high low) Due these distortions, is not monotone level benefits. Unlike previous studies, study, show that can multi-directionally affect companies' related schemes.