Evidence on the Dark Side of Internal Capital Markets

Posted: 1 Feb 2010

See all articles by Oguzhan Ozbas

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

David S. Scharfstein

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

Abstract

This article documents differences between the Q-sensitivity of investment of stand-alone firms and unrelated segments of conglomerate firms. Unrelated segments exhibit lower Q-sensitivity of investment than stand-alone firms. This fact is driven by unrelated segments of conglomerate firms that tend to invest less than stand-alone firms in high-Q industries. This finding is robust to matching on industry, year, size, age, and profitability. The differences are more pronounced in conglomerates in which top management has small ownership stakes, suggesting that agency problems explain the investment behavior of conglomerates.

Keywords: D21, D23, G31

Suggested Citation

Ozbas, Oguzhan and Scharfstein, David S., Evidence on the Dark Side of Internal Capital Markets (September 2009). The Review of Financial Studies, Vol. 23, Issue 2, pp. 581-599, 2009, Available at SSRN: https://ssrn.com/abstract=1544184 or http://dx.doi.org/hhp071

Oguzhan Ozbas (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

David S. Scharfstein

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-496-5067 (Phone)
617-496-8443 (Fax)

HOME PAGE: http://www.people.hbs.edu/dscharfstein/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
647
PlumX Metrics