Are Internal Capital Markets Efficient?

The Charles A. Dice Center for Research in Financial Economics WPS #97-4

Posted: 22 Sep 1997

See all articles by Hyun-Han Shin

Hyun-Han Shin

Yonsei University

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: Undated

Abstract

Using segment information from Compustat from 1978 through 1992, we find that investment by a segment of a diversified firm depends on the cash flow of the firm's other segments. The investment by segments of highly diversified firms is larger and less sensitive to their cash flow than the investment of comparable single-segment firms. We document that diversified firms treat segments alike when they should not. In particular, the sensitivity of a segment's investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm's other segments.

JEL Classification: G31, G32

Suggested Citation

Shin, Hyun-Han and Stulz, Rene M., Are Internal Capital Markets Efficient? (Undated). The Charles A. Dice Center for Research in Financial Economics WPS #97-4, Available at SSRN: https://ssrn.com/abstract=11159

Hyun-Han Shin

Yonsei University ( email )

50 Yonsei Ro
Seodaemoon Gu
Seoul
Korea, Republic of (South Korea)
82-2-21235466 (Phone)

HOME PAGE: http://https://ysb.yonsei.ac.kr/faculty.asp?mid=n02&sOpt=&uid=32

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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