A theory of socialistic internal capital markets

Journal of Financial Economics

Volumn 80, Issue 3, 2006, Pages 485-509

  Bernardo, Antonio E ^a   Luo, Jiang ^b   Wang, James J D ^c  

^a UNIVERSITY OF CALIFORNIA   (United States)

^b HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY   (Hong Kong)

^c CITY UNIVERSITY OF HONG KONG   (Hong Kong)

Author keywords

Capital budgeting; Internal capital markets; Investment policy

Indexed keywords

EID: 33646527163     PISSN: 0304405X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfineco.2005.07.002     Document Type: Article

References (44)

1. Alchian A.A. Corporate management and property rights. In: Manne H. (Ed). Economic Policy and the Regulation of Corporate Securities (1969), American Enterprise Institute, Washington DC 337-360
2. Berkovitch E., and Israel R. Why the NPV criterion does not maximize NPV. Review of Financial Studies 17 (2004) 239-255
3. Bernardo A.E., and Chowdhry B. Resources, real options, and corporate strategy. Journal of Financial Economics 63 (2002) 211-234
4. Bernardo A.E., Cai H., and Luo J. Capital budgeting and compensation with asymmetric information and moral hazard. Journal of Financial Economics 61 (2001) 311-344
5. Bernardo A.E., Cai H., and Luo J. Capital budgeting in multi-division firms: information, agency, and incentives. Review of Financial Studies 17 (2004) 739-767
6. Billett M.T., and Mauer D.C. Cross-subsidies, external financing constraints, and the contribution of the internal capital market to firm value. Review of Financial Studies 16 (2003) 1167-1201
7. Boot A.W.A., Milbourn T.T., and Thakor A.V. Sunflower management and capital budgeting. Journal of Business 78 (2005) 501-527
8. Brealey R.A., and Myers S.C. Principles of Corporate Finance. 7th ed. (2003), McGraw-Hill Irwin, New York
9. Brusco S., and Panunzi F. Reallocation of corporate resources and managerial incentives in internal capital markets. European Economic Review 49 (2005) 659-681
10. Campa J.M., and Kedia S. Explaining the diversification discount. Journal of Finance 57 (2002) 1731-1762
11. Chevalier, J., 2000. What do we know about cross-subsidization? Evidence from the investment policies of merging firms. Unpublished working paper, Yale University.
12. Corbett J., and Jenkinson T. How is investment financed? A study of Germany, Japan, the United Kingdom, and the United States. The Manchester School 65 Suppl. (1997) 69-93
13. Dessein W. Authority and communication in organizations. Review of Economic Studies 69 (2002) 811-838
14. Fudenberg D., and Tirole J. Game Theory (1991), MIT Press, Cambridge, MA
15. Garcia, D., 2002. Optimal contracts with privately informed agents and active principals. Unpublished working paper, Dartmouth College.
16. Gertner R., Powers E., and Scharfstein D.S. Learning about internal capital markets from corporate spin-offs. Journal of Finance 57 (2002) 2479-2506
17. Goel A.M., Nanda V., and Narayanan M.P. Career concerns and resource allocation in conglomerates. Review of Financial Studies 17 (2004) 99-128
18. Gomes J., and Livdan D. Optimal diversification: reconciling theory and evidence. Journal of Finance 59 (2004) 507-536
19. Harris M., and Raviv A. The capital budgeting process: incentives and information. Journal of Finance 51 (1996) 1139-1174
20. Harris M., and Raviv A. Capital budgeting and delegation. Journal of Financial Economics 50 (1998) 259-289
21. Harris M., and Raviv A. Allocation of decision-making authority. Review of Finance 9 (2005) 353-383
22. Holmstrom B., and Ricart Costa J. Managerial incentives and capital management. Quarterly Journal of Economics 101 (1986) 835-860
23. Khanna N., and Tice S. The bright side of internal capital markets. Journal of Finance 56 (2001) 1489-1526
24. Laffont J.-J., and Tirole J. Using cost observation to regulate firms. Journal of Political Economy 94 (1986) 614-641
25. Laffont J.-J., and Tirole J. A Theory of Incentives in Procurement and Regulation (1993), MIT Press, Cambridge, MA
26. Lamont O. Cash flow and investment: evidence from internal capital markets. Journal of Finance 52 (1997) 83-109
27. Lamont O., and Polk C. Does diversification destroy value? Evidence from industry shocks. Journal of Financial Economics 63 (2002) 51-77
28. Maksimovic V., and Phillips G.M. Do conglomerate firms allocate resources inefficiently across industries? Theory and evidence. Journal of Finance 57 (2002) 721-767
29. Marino A.M., and Matsusaka J.G. Decision processes, agency problems, and information: an economic analysis of capital budgeting procedures. Review of Financial Studies 18 (2005) 301-325
30. McAfee R.P., and McMillan J. Government procurement and international trade. Journal of International Economics 26 (1989) 291-308
31. Milgrom P., and Roberts J. Economics, Organizations and Management (1992), Prentice-Hall, Englewood Cliffs
32. Mirrlees J.A. An exploration in the theory of optimum income taxation. Review of Economic Studies 38 (1971) 135-208
33. Mookherjee D., and Reichelstein S. Dominant strategy implementation of Bayesian incentive compatible allocation rules. Journal of Economic Theory 56 (1992) 378-399
34. Myerson R.B. Optimal auction design. Mathematics of Operations Research 6 (1981) 58-73
35. Ozbas O. Integration, organizational processes, and allocation of resources. Journal of Financial Economics 75 (2005) 201-242
36. Palia, D., 1999. Corporate governance and the diversification discount: evidence from panel data. Unpublished working paper, Rutgers University.
37. Poterba J., and Summers L. A CEO survey of U.S. companies' time horizons and hurdle rates. Sloan Management Review 37 (1995) 43-53
38. Rajan R., Servaes H., and Zingales L. The cost of diversity: the diversification discount and inefficient investment. Journal of Finance 55 (2000) 35-80
39. Scharfstein, D.S., 1998. The dark side of internal capital markets II: evidence from diversified conglomerates. Unpublished working paper, Harvard University.
40. Scharfstein D.S., and Stein J.C. The dark side of internal capital markets: divisional rent-seeking and inefficient investment. Journal of Finance 55 (2000) 2537-2564
41. Shin H., and Stulz R. Are internal capital markets efficient?. Quarterly Journal of Economics 113 (1998) 531-552
42. Stein J.C. Internal capital markets and the competition for corporate resources. Journal of Finance 52 (1997) 111-133
43. Whited T. Is it inefficient investment that causes the diversification discount?. Journal of Finance 56 (2001) 1667-1692
44. Williamson O.E. Markets and Hierarchies: Analysis and Antitrust Implications (1975), Collier Macmillan, New York