Internal Capital Markets and Diversified Firms: Theory and Practice
Daniel Hoang and
EconStor Preprints from ZBW - Leibniz Information Centre for Economics
We analyze a unique dataset from a survey of CFOs of diversified firms to examine four areas of diversification and internal capital markets: causes and financing effects of corporate diversification, capital budgeting processes, capital investment methods, and reallocation policies in internal capital markets. CFOs see the main financial benefits of being diversified in lower costs of capital and higher debt capacities. Challenging the usual bottom-up view on capital allocation, firms’ capital budgeting processes have typically also a top-down component: while top management relies on financial projections provided by divisions it also uses its own qualitative information. Top management is aware of agency and information problems at the divisional level and organizes the budgeting process to counteract managerial opportunism. Firms acknowledge that capital allocation decisions can frequently lead to a more evenly distributed allocation than pure financial criteria suggest.
Keywords: Corporate Investment; Capital Budgeting; Internal Capital Markets (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.econstor.eu/bitstream/10419/169432/1/2 ... rsified_Firms_vF.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:169432
Access Statistics for this paper
More papers in EconStor Preprints from ZBW - Leibniz Information Centre for Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().