Internal Capital Market Subsidies and Industry Downturns

25 Pages Posted: 14 Aug 2008

See all articles by Charles A. Brown

Charles A. Brown

Pennsylvania State University - Sam and Irene Black School of Business

Chris R. McNeil

affiliation not provided to SSRN

Abstract

We examine whether multisegment firms tend to subsidize operations doing business in industries that experience a major downturn in investment opportunities. The results provide little evidence of subsidization. The likelihood of discontinuation of multisegment operations in these industries does not statistically differ from that of single-segment operations. Similarly, patterns of capital expenditures after the shock do not materially deviate between multisegment and single-segment operations. These results indicate that the internal capital markets of multisegment firms are no less (and no more) efficient than that of single-segment firms in their reaction to a shock to investment opportunities.

Suggested Citation

Brown, Charles A. and McNeil, Christopher R., Internal Capital Market Subsidies and Industry Downturns. Accounting & Finance, Vol. 48, Issue 3, pp. 337-361, September 2008. Available at SSRN: https://ssrn.com/abstract=1224070 or http://dx.doi.org/10.1111/j.1467-629X.2007.00250.x

Charles A. Brown (Contact Author)

Pennsylvania State University - Sam and Irene Black School of Business ( email )

4701 College Dr
Erie, PA 16563
United States

Christopher R. McNeil

affiliation not provided to SSRN

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