The Efficiency of Internal Capital Markets: Evidence from the Annual Capital Expenditure Survey

40 Pages Posted: 18 Mar 2008 Last revised: 10 Oct 2012

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

I-Ming Chiu

Rutgers, The State University of New Jersey - Rutgers University, Camden

Victor Souphom

U.S. Census Bureau - Center for Economic Studies

Guy Yamashiro

California State University, Long Beach - Department of Economics

Date Written: April 1, 2008

Abstract

We empirically examine whether greater firm diversity results in the inefficient allocation of capital. Using both COMPUSTAT and the Annual Capital Expenditure Survey (ACES) we find firm diversity to be negatively related to the efficiency of investment. However once we distinguish between capital expenditure for structures and equipment, we find that while firms do inefficiently allocate capital for equipment, they efficiently allocate capital for structures. These results suggest that when the decision will have long-lasting repercussions, headquarters will, more often than not, make the correct choice.

Keywords: Internal Capital Allocation, Diversified Firm, Investment

JEL Classification: D2, G3, L2

Suggested Citation

Agarwal, Sumit and Chiu, I-Ming and Souphom, Victor and Yamashiro, Guy, The Efficiency of Internal Capital Markets: Evidence from the Annual Capital Expenditure Survey (April 1, 2008). US Census Bureau Center for Economic Studies Paper No. CES-WP-08-08. Available at SSRN: https://ssrn.com/abstract=1107292 or http://dx.doi.org/10.2139/ssrn.1107292

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

I-Ming Chiu

Rutgers, The State University of New Jersey - Rutgers University, Camden ( email )

Camden, NJ 08102
United States

Victor Souphom

U.S. Census Bureau - Center for Economic Studies ( email )

Suitland Federal Center
Washington, DC 20233
United States

Guy Yamashiro

California State University, Long Beach - Department of Economics ( email )

1250 Bellflower Blvd
Long Beach, CA 90840-4607
United States

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