Internal capital market subsidies and industry downturns

Charles A. Brown and Chris R. McNeil

Accounting and Finance, 2008, vol. 48, issue 3, pages 337-361

Abstract: We examine whether multisegment firms tend to subsidize operations doing business in industries that experience a major downturn in investment opportunities. The results provide little evidence of subsidization. The likelihood of discontinuation of multisegment operations in these industries does not statistically differ from that of single-segment operations. Similarly, patterns of capital expenditures after the shock do not materially deviate between multisegment and single-segment operations. These results indicate that the internal capital markets of multisegment firms are no less (and no more) efficient than that of single-segment firms in their reaction to a shock to investment opportunities. Copyright (c) 2007 The Authors. Journal compilation (c) 2007 AFAANZ.

Date: 2008

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