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Corporate Governance and Internal Capital Markets


Zacharias Sautner


Frankfurt School of Finance & Management gemeinnützige GmbH

Belen Villalonga


New York University (NYU) - Leonard N. Stern School of Business

January 2010

Harvard Business School Finance Working Paper No. 1530565
AFA 2011 Denver Meetings Paper

Abstract:     
We exploit an exogenous shock to corporate ownership structures created by a recent tax reform in Germany to explore the link between corporate governance and internal capital markets. We find that firms with more concentrated ownership are less diversified and have more efficient internal capital markets. Our findings provide direct evidence in support of Scharfstein and Stein’s (2000) model, which suggests that internal capital misallocations are partly a result of poor corporate governance. We also provide evidence of a channel through which the benefits of ownership concentration outweigh its costs.

Number of Pages in PDF File: 47

Keywords: Corporate governance, internal capital markets, ownership, diversification

JEL Classification: G31, G32, G34

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Date posted: January 3, 2010 ; Last revised: June 7, 2010

Suggested Citation

Sautner, Zacharias and Villalonga, Belen, Corporate Governance and Internal Capital Markets (January 2010). Harvard Business School Finance Working Paper No. 1530565; AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1530565 or http://dx.doi.org/10.2139/ssrn.1530565

Contact Information

Zacharias Sautner (Contact Author)
Frankfurt School of Finance & Management gemeinnützige GmbH ( email )
Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany
Belen Villalonga
New York University (NYU) - Leonard N. Stern School of Business ( email )
40 West 4th Street
New York, NY NY 10012
United States
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