Internal capital market subsidies and industry downturns |
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| Authors: | Charles A. Brown Chris R. McNeil |
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| Affiliation: | Sam and Irene Black School of Business Penn State Erie, The Behrend College, Erie, PA 16563, USA;
Finance, Banking &Insurance, Walker College of Business, Appalachian State University, Boone, NC 28608, USA |
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| 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. |
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| Keywords: | Capital budgeting Internal capital markets Industry shock Subsidization |
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