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Empirical evidence on the effect of intra-conglomerate competition in the effectiveness of internal capital markets
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Resumo(s)
Recent research on corporate diversification suggests the existence of superior
performance of conglomerates over specialized firms during recessions. The existence of
internal capital markets facilitates the re-distribution of cash flows within conglomerates.
Nevertheless, the allocation of funds to a specific segment is contingent on the conglomerate’s
internal competition for funds. I find noticeable evidence that less competitive conglomerates
enhance their responsiveness to investment opportunities to a greater extent during recessionary
periods, comparatively to highly competitive conglomerates and specialized firms. Moreover,
I find evidence that fiercer intra-conglomerate competition is correlated with greater
dependence of investment on internally generated cash flows.
Descrição
Palavras-chave
Internal capital markets Business cycle Conglomerate Capital allocation