 Firm aging and internal capital marketsTatsuo Ushijima Pacific-Basin Finance Journal, 2025, vol. 92, issue C Abstract: Internal capital markets (ICMs) can induce diversified firms to misallocate capital across divisions, thereby causing overinvestment in unpromising opportunities at the expense of more promising ones. This study highlights the role of age-based organizational rigidity in generating this phenomenon. Our analysis of Japanese firms reveals a robust inverse association between allocative efficiency and firm age. This relationship is particularly salient when a firm has assets decreasing its flexibility and when the incongruence of divisional interests in capital allocation is large. Moreover, this effect is not attributable to interfirm differences in external capital access, agency costs, or organizational members' traits. These results suggest that age-based rigidity plays a central role in lowering older firms' allocative efficiency. We also find that despite this adverse effect of aging on capital allocation, diversification mitigates the decline in growth opportunities for older firms. Keywords: Corporate diversification; Internal capital market; Firm age; Organizational rigidity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25000976 DOI: 10.1016/j.pacfin.2025.102760 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.