QUESTION FOUR. In most multi-divisional rms, divisional managers run their divisions as prot centers: they have broad decision rights and are evaluated based on divisional prots. (a) However, these divisional managers' decision rights do not typically extend (b) to their capital budget. That is, they are not allowed to choose the amount of capital that they will be allowed to invest in their division as that decision is centralized. These divisional managers have valuable information (specic knowledge) about the appropriate capital expenditures for their division. Why aren't they allowed to choose their capital budget? In a recent paper titled Divisional Managers and internal Capital Markets Professors Ran Duchin and Denis Sosyura of the University of Michigan show that divisional managers with social ties to the CEO receive more capital. Would you expect multi-divisional rms where divisional managers have social ties the CEO to have a smaller or larger diversication discount than multi-divisional rms where the divisional managers do not have social ties to the CEO? Explain