the evolving landscape of banking the structure of the financial services industry is in flux liberalization deregulation and advances in information technology have changed the financial landscape dramatically interbank competition has heated up and banks face increasing competition from nonbanking financial institutions and the financial markets the predictability of the industry with low levels of financial innovation little innovation in distribution channels and well defined and rigid institutional structures is gone product innovations new distribution channels and emerging new competitors are in abundance moreover the subprime crisis that has hit the financial sector in 2007 2008 appears to have a major impact on the structure of the industry this article emphasizes the importance of understanding the economics of banking for assessing the changes in the industry in particular we point at relationship banking as a prime source of the banks comparative advantage the proliferation of transaction oriented banking trading and financial market activities does however seriously challenge relationship banking in order to focus on these issues in a rigorous way we will evaluate the key insights from the relationship banking literature including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market underwriting securitization etc activities we also address the issue of the optimal conglomeration of bank activities including the empirical evidence on scope and scale economies we analyze the strategic positioning of banks in the currently highly uncertain competitive arena and link this to the theory of the firm and particularly firm boundaries and learning

conglomerate investment under various capital market conditions abstract this paper studies the investment of diversified and focused firms under various capital market conditions when external capital becomes more costly at the aggregate level investment declines in focused firms but remains unchanged in diversified firms this investment advantage enjoyed by diversified firms could attribute to both their easy access to external capital and their ability to substitute internal capital markets for costly external markets consistent with the internal capital market argument our findings show that the investment advantage exists for diversified firms even after we control for their easy access to external markets we also find that the role of internal markets in financing investment is more important for diversified firms that are more financially constrained in external markets finally we find that the segment level investment becomes more efficient in conglomerates internal capital markets under depressed external capital market conditions overall our findings suggest that internal capital allocation functions as a valuable and efficient substitute for diversified firms in a tightened external capital market

does diversification destroy value evidence from the industry shocks does corporate diversification reduce shareholder value since firms endogenously choose to diversify exogenous variation in diversification is necessary to draw inferences about the causal effect we examine changes in the within firm dispersion of industry investment or diversity we find that exogenous changes in diversity due to changes in industry investment are negatively related to firm value thus diversification destroys value consistent with the inefficient internal capital markets hypothesis measurement error does not cause this finding we also find that exogenous changes in industry cash flow diversity are negatively related to firm value r 2002 elsevier science s a all rights reserved jel classification g34

the relationship between green supply chain management and performance a meta analysis of empirical evidences in asian emerging economies the purpose of this study is to understand the relationship between green supply chain management gscm practices and firm performance in the manufacturing sector in asian emerging economies aee based on empirical evidence through a systematic literature review we identified 50 articles that surveyed 11 127 manufacturing companies in the aee and were published between 1996 and 2015 subsequently a conceptual framework was developed and analyzed through a meta analysis of 130 effects from 25 680 effect sizes the findings revealed that the gscm practices lead to better performance in four aspects economic environmental operational and social performance moreover the results indicate that industry type firm size iso certification and export orientation moderate several of the gscm practice performance relationships moreover the findings of this research help managers and policy makers to have more confidence in the adoption of gscm practices to improve firm performance such results also help researchers to better channel their efforts in studying the gscm practices in aee in addition as meta analysis has not been widely used in the supply chain management literature our study is an important step in maturing the academic field by adopting this technique for confirming gscm practice performance relationships in the manufacturing sector of aee

exploring the antecedents of logistics social responsibility a focus on chinese firms fundamental research funds for the central universities 2010221025 2011221016 national natural science foundation of china 70802052 academic outstanding youthful research talent plan of fujian province ja10001s national research foundation for doctoral program of higher education of china 20100121120013 national ministry of education of china humanities and social science 10yjc630010 ncet 10 0712

capital budgeting in multidivision firms information agency and incentives author s bernardo antonio e cai hongbin luo jiang abstract we consider a firm with two investment projects divisions each run by a manager who can provide i unverifiable information about the quality of either or both projects and ii unverifiable access to valuable resources that can enhance the cash flows of either or both projects we then examine the extent to which capital allocation and managerial compensation schemes can be designed jointly to mitigate the information and incentive problems within the firm we find that the firm underinvests in capital in both projects relative to the first best level optimal managerial profit sharing increases in the quality of both projects and managers underinvest resources in both projects interestingly the underinvestment problem in one project is less severe when the other project is higher quality this effect will be stronger when the moral hazard problem is more acute and project returns are more highly correlated we also predict that multi division firms will invest more less than single division firms when other divisions in the firm perform well poorly

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

revisiting the bright and dark sides of capital flows in business groups prior studies report that the business group structure and the associated intra group capital flows are prone to conflicts of interest between controlling shareholders and minority investors yet business group is a prevalent and stable structure around the globe particularly where capital markets are underdeveloped using data from china this paper empirically studies the trade off between the negative and positive roles played by intra group capital flows and tests the efficiency implications of such trade off we find that from the perspective of the whole group intra group capital flows are most efficient when the groups are least subject to conflicts of interest between controlling shareholders and minority shareholders and when they face strong external financing constraints

how much does country matter an analysis of firms growth options recent international strategy research emphasizes the importance of understanding the effects of geographic location on firms strategies and performance outcomes we contribute to this research by providing empirical evidence that the interplay of country and industry effects matters substantially in explaining the variation in the value of growth options of firms based in different countries our results show that country industry effects are the second largest source of variation following firm effects while industry and country effects are relatively small when considered in their own right that valuable growth options are tied to country and industry interactions has important implications for international strategy research and practice

solution of macromodels with hansen sargent robust policies some extensions abstract we summarize some methods useful in formulating and solving hansen sargent robust control problems and suggest extensions to discretion and simple rules matlab octave and gauss software is provided we illustrate these extensions with applications to the term structure of interest rates the time inconsistency of optimal monetary policy the effects of expectations on the variances of inflation and output and on whether central banks should make their forecasts public

can socialism in internal capital markets occur in the absence of managerial rent seeking socialism in internal capital markets sicm is the phenomenon whereby multi division firms underinvest in high profit segments and overinvest in low profit segments this article modifies and extends the scharfstein and stein 2000 model that explains sicm the major modification is to abstract from rent seeking behaviour a central ingredient that is used by most sicm models and has the side effect of overturning sicm when the underlying rent seeking game is slightly perturbed it is shown that when division managers private benefits are not exactly propotional to their division s production profit as assumed by scharfstein and stein 2000 sicm arises due to the ceo s incentive to extract gain from the trade of capital between his division managers by equalizing their marginal private benefits instead of accommodating rent seeking furthermore we show that diversification discounts exist increase in diversity and decrease in ceo ownership the results are robust to endogenizing the investors

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

business collateral and personal commitments in sme lending abstract using a database of sme credit approvals from a large belgian bank this paper extends the empirical evidence on the determinants of collateral by examining the determinants of business collateral simultaneously with the determinants of personal collateral commitments our results suggest that firm and relationship characteristics seem to be more important determinants of collateral commitment protection than loan and lender characteristics family firms are more likely to offer a higher degree of collateral commitment protection while introducing competition between banks decreases this likelihood the collateral requirement decreases in the length of the bank borrower relationship furthermore trade credit seems to have a signalling effect the lazy banks hypothesis was not supported our results suggest that beside risk arguments also commercial arguments help explain the pledging of collateral using a continuation ratio logit model we discover several differences in the determinants of the collateralisation decision and the determinants of the type of collateral commitments

internal equity financing and the performance of multinational subsidiaries in emerging economies we examine the internal equity financing of the multinational subsidiary which retains and reinvests its own earnings internal equity financing is a type of firm specific advantage fsa along with other traditional fsas in innovation research and development brands and management skills it also reflects subsidiary level financial management decision making here we test the contributions of internal equity financing and subsidiary level financial management decision making to subsidiary performance using original survey data from british multinational subsidiaries in six emerging countries in the south east asia region our first finding is that internal equity financing acts as an fsa to improve subsidiary performance our second finding is that over 90 of financing sources including capital investment by the parent firms in the british subsidiaries come from internal funding our third finding is that subsidiary level financial management decision making has a statistically significant positive impact on subsidiary performance our findings advance the theoretical empirical and managerial analysis of subsidiary performance in emerging economies

the value of embedded real options evidence from consumer automobile lease contracts under the common assumption of constant interest rates we show that penalties for early termination of a lease are often structured in such a way that the cancellation option embedded in consumer automotive leases has little value furthermore our estimates drawn from a sample of three popular car models over 1990 to 2000 indicate that the stand alone value of the lease end purchase option is on average about 16 of the market value of underlying used vehicles or about 1 462 per contract finally we examine the sensitivity of our option value estimates to model parameters and default risk recent years have witnessed a dramatic growth in the leasing of automobiles for instance overall industry sales data indicate that about a third of the new vehicles and trucks sold in the united states are leased hendel and lizzeri 2002 and miller 1995 and the federal reserve board survey of family finances reports that the use of leased vehicles by individuals nonbusiness consumers has risen from 2 9 to 5 8 over the 1992 to 2001 period azicorbe kennickell and moore 2003 consumer automobile lease contracts for new cars often include two embedded options that are not associated with a typical debt contract the first is a cancellation option that allows the lessee to terminate the lease early the second is a european call option which gives the lessee the right but not the obligation to purchase the leased used vehicle at the scheduled termination of the lease at a predetermined exercise price both of these options are simple examples of real options because the asset underlying these options is a used car that is a real asset however these options constitute a special case of real options since they are embedded in the lease contract which is a financial credit instrument theoretical analyses of lease contracts show that the cancellation option is quite valuable schallheim and mcconnell 1985 with respect to the purchase option hendel and lizzeri 2002 argue that they can play an important role in

asset price shocks financial constraints and investment evidence from japan this paper examines investment spending of japanese firms around the asset price bubble in the late 1980s and makes three contributions to our understanding of how stock valuations affect investment first corporate investment responds significantly to nonfundamental components of stock valuations during asset price shocks fundamentals matter less clearly the stock market is not a sideshow second the time series variation in the sensitivity of investment to cash flow is affected more by changes in monetary policy than by shifts in collateral values finally asset price shocks primarily affect firms that rely more on bank financing and not necessarily those that use equity markets for financing only the investment of bank dependent firms responds to nonfundamental valuations in addition the cash flow sensitivity of bank dependent firms with large collateral assets decreases when asset prices become inflated but increases dramatically when asset prices collapse and monetary policy tightens

robust control with commitment a modification to hansen sargent i examine the hansen and sargent 2003 robust control of forward looking models journal of monetary economics 50 581 604 formulation of the robust stackelberg problem and show that their method of constructing the approximating equilibrium is generally invalid i then turn to the hansen and sargent 2007 robustness manuscript version dated march 22 2007 treatment which responding to the problems raised in this paper changes subtly but importantly how the robust stackelberg problem is formulated in the context of hansen and sargent 2007 robustness manuscript version dated march 22 2007 i prove first that their method for obtaining the approximating equilibrium is now equivalent to the one developed in this paper and second that the worst case specification errors are not subject to a time consistency problem in the context of the erceg et al 2000 optimal monetary policy with staggered wage and price contracts journal of monetary economics 46 281 313 sticky wage sticky price model i find that a robust central bank will fear primarily that the supply side of its approximating model is misspecified and that robustness affects importantly central bank promises about future policy

critical barriers in implementing reverse logistics in the chinese manufacturing sectors reverse logistics rl is gaining momentum worldwide due to global awareness and as a consequence of resource depletion and environmental degradation firms encounter rl implementation challenges from different stakeholders both internally and externally on the one hand various governmental agencies are coming out with different environmental regulations while on the other hand academics and researchers are contributing solutions and suggestions in different country contexts in a real sense however the benefits of rl implementation is not yet fully realized in the emerging economies this paper proposes a theoretical rl implementation model and empirically identifies significant rl barriers with respect to management financial policy and infrastructure in the chinese manufacturing industries such as automotive electrical and electronic plastics steel construction textiles and paper and paper based products key barriers from our study with respect to these four categories are within management category a lack of reverse logistics experts and low commitment within financial category a lack of initial capital and funds for return monitoring systems within policy category a lack of enforceable laws and government supportive economic policies and finally within infrastructure category a the lack of systems for return monitoring contingency effect of ownership was carried out to understand the similarities and differences in rl barriers among the multinational firms and domestic firms investigated

diversification diseconomies of scope and vertical contracting evidence from the taxicab industry this paper studies how firms reorganize following diversification proposing that firms use outsourcing or vertical disintegration to manage diseconomies of scope we also consider the origins of scope diseconomies showing how different underlying mechanisms generate contrasting predictions about the link between within firm task heterogeneity and the incentive to outsource following diversification we test these propositions using microdata on taxicab and limousine fleets from the economic census the results show that taxicab firms outsource by shifting the composition of their fleets toward owner operator drivers when they diversify into the limousine business the magnitude of the shift toward driver ownership is larger in less urban markets where the tasks performed by taxicab and limousine drivers are more similar these findings suggest that 1 firms use outsourcing to manage diseconomies of scope at a particular point in the value chain and 2 interagent conflicts can be an important source of scope diseconomies

the wacc fallacy the real effects of using a unique discount rate in this paper we test whether firms properly adjust for risk in their capital budgeting decisions if managers use a single discount rate within firms we expect that conglomerates underinvest overinvest in relatively safe risky divisions we measure division relative risk as the difference between the division s asset beta and a firm wide beta we establish a robust and significant positive relationship between division level investment and division relative risk next we measure the value loss due to this behavior in the context of acquisitions when the bidder s beta is lower than that of the target announcement returns are significantly lower

costly external finance corporate investment and the subprime mortgage credit crisis abstract we study the effect of the recent financial crisis on corporate investment the crisis represents an unexplored negative shock to the supply of external finance for non financial firms corporate investment declines significantly following the onset of the crisis controlling for firm fixed effects and time varying measures of investment opportunities consistent with a causal effect of a supply shock the decline is greatest for firms that have low cash reserves or high net short term debt are financially constrained or operate in industries dependent on external finance to address endogeneity concerns we measure firms financial positions as much as four years prior to the crisis and confirm that similar results do not follow placebo crises in the summers of 2003 2006 nor do similar results follow the negative demand shock caused by september 11 2001 the effects weaken considerably beginning in the third quarter of 2008 when the demand side effects of the crisis became apparent additional analysis suggests an important precautionary savings motive for seemingly excess cash that is generally overlooked in the literature

distributional conflict in organizations abstract hierarchy can function as an instrument to channel influence activities or power struggles in organizations contrary to what has frequently been argued we show that multi divisional organizations may involve lower influence costs than single tier organizations even though they offer more scope for organizational conflict and have more executives that can be influenced these benefits derive from two effects first part of the conflict in multi divisional organizations takes place on the division level where a small number of agents fight over only a fraction of the overall prize second by grouping agents into common divisions multi divisional organizations create free rider problems in rent seeking our model sheds new light on the desirability of divestitures and the transition from the u to the m form by us corporations in the 1920s

is it inefficient investment that causes the diversification discount diversified conglomerates are valued less than matched portfolios of pure play firms recent studies find that this diversification discount results from conglomerates inefficient allocation of capital expenditures across divisions much of this work uses tobin s q as a proxy for investment opportunities therefore hypothesizing that q is a good proxy this paper treats measurement error in q using a measurement error consistent estimator on the sorts regressions in the literature i find no evidence of inefficient allocation of investment the results in the literature appear to be artifacts of measurement error and of the correlation between investment opportunities and liquidity diversif ied conglomerates appear to trade at a discount relative to matched portfolios of pure play firms studies documenting this stylized fact include lang and stulz 1994 berger and ofek 1995 comment and jarrell 1995 and servaes 1996 recent empirical work has sought to find the source of this diversification discount building on the theoretical work in milgrom and roberts 1990 stein 1997 and scharfstein and stein 2000 on the inefficiency of internal capital markets this literature has asked specifically whether diversified firms allocate their capital expenditures inefficiently across divisions the canonical answer has been yes and has been supported by two types of evidence first studies such as lamont 1997 shin and stulz 1998 shin and park 1998 and rajan servaes and zingales 2000 all find that internal capital markets in conglomerates transfer funds across divisions in a suboptimal manner second studies such as berger and ofek and scharfstein 1998 provide evidence suggesting that the divisions of conglomerates do not respond adequately to investment opportunities in comparison to single segment firms however these findings about divisional investment may be an artifact of measurement error most of these studies rely on tobin s q the market value of the capital stock divided by its replacement value as a proxy for investment opportunities and tobin s q is likely to be a poor proxy shin and stulz

natural disasters damage to banks and firm investment this article investigates the effect of banks lending capacity on firms investment to identify exogenous shocks to loan supply we utilize the natural experiment provided by japan s great hanshin awaji earthquake in 1995 using a unique data set that allows us to identify firms and banks in the earthquake affected areas we find that the investment ratio of firms located outside the earthquake affected areas but having a main bank inside the areas was significantly smaller than that of firms located outside the areas and having a main bank outside the areas our findings suggest that loan supply shocks affect firm investment abstract from author

the bright side of internal capital markets we examine capital expenditure decisions of discount firms in response to wal mart s entry into their markets before wal mart s entry focused incumbents and discount divisions of diversified incumbents are similar in size geographic dispersion and firm debt levels however discount divisions of diversified firms are significantly more productive after wal mart s entry diversified firms are quicker to either exit the discount business or stay and fight also their capital expenditures are more sensitive to the productivity of their discount business internal capital markets function well as transfers are away from the worsening discount divisions it appears diversified firms make better investment decisions

the influence of financial and legal institutions on firm size abstract theory does not predict an unambiguous relationship between a country s financial and legal institutions and firm size using data on the largest industrial firms for 44 countries we find that firm size is positively related to financial intermediary development the efficiency of the legal system and property rights protection we do not find any evidence that firms are larger in order to internalize the functions of the banking system or to compensate for the general inefficiency of the legal system

design of sustainable supply chains under the emission trading scheme increase in environmental concerns together with legislations are forcing industries to take a fresh look at the impact of their supply chain operations on the environment this paper introduces a mixed integer linear programming based framework for sustainable supply chain design that considers life cycle assessment lca principles in addition to the traditional material balance constraints at each node in the supply chain indeed the framework distinguishes between solid and liquid wastes as well as gaseous emissions due to various production processes and transportation systems the framework is used to evaluate the tradeoffs between economic and environmental objectives under various cost and operating strategies in the aluminum industry the results suggest that current legislation and emission trading schemes ets must be strengthened and harmonized at the global level in order to drive a meaningful environmental strategy moreover the model demonstrates that efficient carbon management strategies will help decision makers to achieve sustainability objectives in a cost effective manner

corporate diversification and credit constraints real effects across the business cycle we study whether differences in access to credit cause focused firms to perform differently from diversified firms in the product market prior work has identified binding credit constraints for bank dependent firms during recessions we assess whether corporate diversification alleviates these constraints we find that during recessions sales growth rates drop more for bank dependent focused firms than for rival segments of bank dependent diversified firms we also find that during recessions inventory growth rates drop more for bank dependent focused firms than for bank dependent diversified firms even after we control for contemporaneous sales growth consistent with a credit constraint explanation we find no difference in the sensitivities to recessions of bank independent focused and bank independent diversified firms jel g30 g31 g32 copyright 2006 oxford university press

how much of the diversification discount can be explained by poor corporate governance we investigate whether the diversification discount occurs partly as an artifact of poor corporate governance in panel data models we find that the discount narrows by 16 to 21 when we add governance variables as regression controls we also estimate heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance we find that the diversification discount persists even with these controls for endogeneity however in selection models the discount disappears entirely when we introduce governance variables in the second stage and in dynamic panel gmm models the discount narrows by 37 when we include governance variables

imperfect credibility and robust monetary policy this paper studies the behavior of a central bank that seeks to conduct policy optimally while having imperfect credibility and harboring doubts about its model taking the smets wouters model as the central bank s approximating model the paper s main ndings are as follows first a central bank s credibility can have large consequences for how policy responds to shocks second central banks that have low credibility can bene t from a desire for robustness because this desire motivates the central bank to follow through on policy announcements that would otherwise not be time consistent third even relatively small departures from perfect credibility can produce important declines in policy performance finally as a technical contribution the paper develops a numerical procedure to solve the decision problem facing an imperfectly credible policymaker that seeks robustness

affiliated firms and financial support evidence from indian business groups abstract we investigate the functioning of internal capital markets in indian business groups we document that intragroup loans are an important means of transferring cash across group firms and are typically used to support financially weaker firms evidence suggests that an important reason for providing support may be to avoid default by a group firm and consequent negative spillovers to the rest of the group consistent with such spillovers the first bankruptcy in a group is followed by significant drops in external financing investments and profits of other firms in the group and an increase in their bankruptcy probability

analyzing internal barriers for automotive parts remanufacturers in china using grey dematel approach abstract automotive industries have attracted attention from international sectors recently this attention to the industry results in many innovative technologies being integrated in these manufacturing arenas in developing countries such as the bric brazil russia india and china countries especially china who is a global leader in automotive sales and production researchers see substantial attempts to increase economic and societal values in automotive sectors through the use of many sustainable strategies among these sustainable strategies remanufacturing has witnessed much debate in recent years in china automotive parts remanufacturing is still in a nascent stage but the country is striving hard to implement a strategy in industries to result in cleaner production additionally remanufacturing yields high financial societal and environmental returns and it provides advantages such as reducing costs compared to virgin products an increase in jobs and the conservation of scare resources some earlier studies examined chinese remanufacturing issues but they only focused on modeling concepts without considering significant barriers to bridge this gap this paper analyzes internal barriers met by automotive parts remanufacturers and evaluates causal barriers by a proposed model framework this objective is illustrated by employing the grey decision making trial and evaluation laboratory dematel approach by virtue of these findings remanufacturers can eradicate major internal barriers and can increase the chances of practicing more productive remanufacturing in the chinese automotive environments this study extends the scope of this problem through varied applications of different techniques such as a fuzzy approach matrix laboratory and operations research tools by diversifying and including additional barriers

internal capital markets and corporate politics in a banking group we analyze proprietary internal capital allocation data from a large retail banking group consisting of member banks and a headquarters organization we find that capital allocations from headquarters compensate for deposit shortfalls on the bank level suggesting that the headquarters offers deposit smoothing to member banks we then analyze how the distribution of influence within the group relates to capital allocations and lending behavior more influential banks are allocated more funds from headquarters and their loan growth is less sensitive to their deposit base the effects of influence are stronger if banks have a greater demand for deposit smoothing

tobin s q and the importance of focus in firm performance using tobin s q as a measure of performance we seek to estimate the relative importance of industry focus and share effects in determining firm performance our methods are analogous to those of richard schmalensee and like him we find that industry effects account for the majority of the explained variance however we also find that firm effects exist in the form of focus effects that is narrowly diversified firms do better than widely diversified firms we interpret this finding as consistent with profit maximization by firms with different factor endowments

three types of robust ramsey problems in a linear quadratic framework abstract this paper studies robust ramsey policy problems in a general discrete time linear quadratic framework when the ramsey planner faces three types of ambiguity this framework includes both exogenous and endogenous state variables in addition the equilibrium system from the private sector contains both backward looking and forward looking dynamics we provide recursive characterizations and algorithms to solve for robust policy we apply our method to a basic new keynesian model of optimal monetary policy with persistent cost push shocks we find that i all three types of ambiguity make optimal monetary policy more history dependent but with different reasons for each type and ii they deliver qualitatively different initial responses of inflation and the output gap following a cost push shock

spin offs divestitures and conglomerate investment we examine whether spin offs or divestitures cause improvements in conglomerate investment efficiency at issue are endogeneity of these restructuring decisions and correct measurement of investment efficiency endogeneity is a problem because the factors that induce firms to spin off or divest divisions may also improve investment efficiency measurement error is a problem because efficiency measures employ tobin s q as a noisy proxy for investment opportunities we find important differences between firms that divest or spin off and a control sample after accounting for these differences and for measurement error in q we find no evidence of improvements in investment efficiency

divisional diversity and the conglomerate discount evidence from spinoffs abstract existing literature argues that disparity in investment opportunities within diversified firms can erode firm value we investigate the diversity cost hypothesis of spinoffs by using post spinoff data to 1 reconstruct the diversified firm after the spinoff and assess the aggregate improvement in value and 2 relate any value improvements to changes in diversity we find that improvements in aggregate value depend significantly on changes in both a direct measure of diversity and measures based on industry proxies we conclude that diversification discounts at least partially reflect a value loss due to the diversified nature of the firm itself rather than selection bias or measurement error

employment corporate investment and cash flow risk we highlight the role of cash flow uncertainty on corporate employment and investment we find that a 1 increase in cash flow uncertainty leads to a 0 62 decrease in tangible investment a 1 39 decrease in intangible investment and a 3 67 decrease in corporate employment growth our results are statistically and economically significant we further find that these relationships are stronger during economic recessions our findings have significant policy implications to wit if policy makers would like corporations to increase their employment and investment they should focus on policies that decrease corporate cash flow uncertainty

four types of ignorance abstract this paper studies alternative ways of representing uncertainty about a law of motion in a version of a classic macroeconomic targetting problem of milton friedman 1953 we study both unstructured uncertainty ignorance of the conditional distribution of the target next period as a function of states and controls and more structured uncertainty ignorance of the probability distribution of a response coefficient in an otherwise fully trusted specification of the conditional distribution of next period s target we study whether and how different uncertainties affect friedman s advice to be cautious in using a quantitative model to fine tune macroeconomic outcomes

robustly optimal monetary policy in a microfounded new keynesian model we consider optimal monetary stabilization policy in a new keynesian model with explicit microfoundations when the central bank recognizes that private sector expectations need not be precisely model consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model consistency we show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules we show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have rational expectations

capital constraints asymmetric information and internal capital markets in banking new evidence a growing literature investigates the role of internal capital markets in mitigating financial constraints faced by the subsidiaries of a conglomerate most studies have relied on indirect tests based on correlations between the cash flows and the investment of the subsidiaries in contrast we avoid the widespread criticisms of such specifications by providing direct tests that focus on the mechanisms through which internal reallocations of funds occur we find that internal capital markets are used by multibank holding companies to mitigate capital constraints faced by individual bank subsidiaries in addition we show that internal capital management within a multibank holding company involves not only the movement of capital to those subsidiaries with a relatively greater need for capital but also the movement of assets loans from less well capitalized to better capitalized subsidiaries by means of loan sales and purchases among the subsidiaries furthermore net loan sales are used to allow efficiency enhancing specialization among bank subsidiaries insofar as those subsidiaries with the best loan origination opportunities are able to focus on loan originations even if they do not have sufficient capital to hold the loans our evidence is consistent with banks affiliated with holding companies more actively participating in loan sales and purchases because by using their internal secondary loan market they are able to avoid the lemons problem faced by stand alone banks

organizational structure and performance feedback centralization aspirations and termination decisions this study examines the effects of organizational structure and performance feedback on termination decisions in particular product phaseout using quarterly product level data on the major mobile handset manufacturers for the period 2004 2009 we analyze how product level feedback affects product phaseout and how these decisions are conditioned by organizational structure the extent to which decision making is centralized we argue that such structure affects termination in two ways directly through coordination and indirectly by shaping the interpretation of performance feedback our baseline models indicate that as performance increases above aspirations the rate of phaseout decreases we find that as performance declines below aspirations the rate of phaseout decreases but then increases when the product falls below a certain sales threshold we also find evidence that centralization amplifies the feedback effect above aspirations but attenuates it below aspirations this study links two pillars of the carnegie school aspiration levels and hierarchy to explain the complexity of phaseout following perceived success or failure we thereby augment the growing scholarship on performance feedback by considering some important conditional effects imposed by a centralized structure our focus on centralization expands the scope of theory concerning organization design by linking structure and cognition to explain firm behavior especially termination decisions

reverse logistics in malaysia the contingent role of institutional pressure reverse logistics is a primary component of green supply chain management initiatives and is often analysed from a broad perspective rooted in the resource based view of the firm this empirical study decomposes reverse logistics into five commonly adopted disposition options repair recondition remanufacture recycle and disposal to examine the effects of using each option on measures of environmental performance profitability and sales growth considering institutional theory this study also investigates the moderating role of both regulatory and ownership pressure on the relationship between each reverse logistics disposition option and levels of performance using survey data collected from managers at 89 iso14001 certified electrical and electronic equipment manufacturing firms regression models test a series of hypothesized relationships results suggest that under the presence of institutional pressure use of disposition options results in increased levels of performance in some cases the recovery of valuable components during product recondition and remanufacture activities contributes to enhanced environmental and economic benefits conversely product recycling and disposal activities are not necessarily performance inducing initiatives in the face of regulatory pressures the findings of this study can be used to inform business decisions regarding the adoption and use of reverse logistics strategies legislative frameworks regarding extended producer responsibility are recommended in order to motivate the implementation of reverse logistics product disposition activities

robustly optimal monetary policy with near rational expectations the paper considers optimal monetary stabilization policy in a forward look ing model when the central bank recognizes that private sector expectations need not be precisely model consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model consistency it is found that commitment continues to be important for optimal policy that the optimal long run inflation target is unaffected by the degree of potential distortion of beliefs and that optimal policy is even more history dependent than if rational expectations are assumed jel c62 d84 el 3 e31 e32 e52 an extensive literature has considered the optimal conduct of monetary policy under the assumption of rational or model consistent expectations this literature has found that it is quite important to take account of the effects of the systematic and hence predictable compo nent of monetary policy on expectations for example it is found quite generally that an optimal policy commitment differs from the policy that would be chosen through a sequential optimiza tion procedure with no advance commitment of future policy it is also found quite generally that optimal policy is history dependent a function of past conditions that no longer affect the degree to which it would be possible to achieve stabilization aims from the present time onward 1 both of these conclusions depend critically however on the idea that an advance commitment of future policy should change people s expectations at earlier dates this may lead to the fear that analyses that assume rational expectations re exaggerate the degree to which a policy authority can rely upon private sector expectations to be shaped by its policy commitments in precisely the way that it expects them to be what if the relation between what a central bank plans to do and what the public will expect to happen is not quite so predictable might both the case for advance commitment of policy and the case for history dependent policy be considerably weakened under a more skeptical view of the precision with which the public s expectations can be predicted one way of relaxing the assumption of rational expectations is to model agents as forecasting using an econometric model the coefficients of which they must estimate using data observed prior to some date sampling error will then result in forecasts that depart somewhat from pre cise consistency with the analyst s model 2 however selecting a monetary policy rule on the basis of its performance under a specific model of learning runs the risk of exaggerating the degree to which the policy analyst can predict and hence exploit the forecasting errors that result from a particular way of extrapolating from past observations one might even conclude

evidence on the dark side of internal capital markets this article documents differences between the sensitivity of investment of stand alone firms and unrelated segments of conglomerate firms unrelated segments exhibit lower o 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 s 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

internal capital markets and firm level compensation incentives for division managers do multidivisional firms structure compensation contracts for division managers to mitigate incentive problems in their internal capital markets i find evidence that compensation and investment incentives are substitutes firms providing a stronger link to firm performance in incentive compensation for division managers also provide weaker investment incentives through the capital budgeting process specifically as the proportion of incentive pay for division managers that is based on firm performance increases division investment is less responsive to division profitability these findings are generally consistent with a model of influence activities by division managers in interdivisional capital allocation decisions

the future of operations management an outlook and analysis abstract managing operations in both manufacturing and service organizations have evolved tremendously over the years with the change in market requirements the market has become global thereby compelling enterprise operations to keep up the application of information technology information systems it is and outsourcing in managing operations have significantly altered the landscape of operations management om strategies techniques and technologies consciousness towards environmental and safety also urges companies to examine their om approach and manufacturing from various perspectives recently energy cost and protection against terrorism have changed the portfolio of enterprise operations and therefore the approach to om now it is time to revisit the om principles curriculum and training at the institution of higher learning and industries moreover manufacturing has become more of a service activity indicating significant service om including project management the profile of service industries has also changed in view of the emergence of globalization outsourcing and it coupled with the rapid economic growth of emerging economies such as brazil russia india and china bric in fact services account for approximately 80 of the us gross domestic product gdp this is also a growing figure of the gdps of other countries over the world again service om needs to be revisited in the context of the abovementioned paradigm shifts in considering the significance of the above mentioned changes in the market and society as a whole an attempt is made to study the evolution of om and subsequently to develop a framework for new om strategies and tactics that will support the competitiveness of organizations within the next 10 20 years

dynamic corporate investment and liquidity management under model uncertainty we extend the model of dynamic investment and liquidity management for financially constrained firms bolton et al 2011 by incorporating model uncertainty our theoretical model predicts that different from traditional business risk model uncertainty and concerning about model misspecification have ambiguous effects on the investment behavior and liquidity management which depends on the firm s liquidity measured by firm s cash capital ratio w w k it shows that model uncertainty induces the firm to under invest when the firm has sufficient cash however the firm prefers over investing as its liquidity is essentially low moreover an increasing in model uncertainty accelerates firm s payout while an increasing in business risk will delay the firm to pay out cash finally it shows that model uncertainty significantly lowers a firm s average q and marginal q as well as marginal value of liquidity

good deals and benchmarks in robust portfolio selection abstract this paper deals with portfolio selection problems under risk and ambiguity the investor may be ambiguous with respect to the set of states of nature and their probabilities both static and discrete or continuous time dynamic pricing models are included in the analysis risk and ambiguity are measured in general settings the considered risk measures contain as particular cases the usual deviations and the coherent and expectation bounded measures of risk four contributions seem to be reached firstly necessary and sufficient optimality conditions are given secondly the portfolio selection problem may be frequently solved by linear programming linked methods despite the fact that risk and ambiguity cannot be given by linear expressions thirdly if there is a market price of risk then there exists a benchmark that creates a robust capital market line when combined with the riskless asset the global risk of every portfolio may be divided into systemic and specific moreover if there is no ambiguity with respect to the states of nature only their probabilities are uncertain then classical capm formulae may be found fourthly some recent pathological findings for ambiguity free analyses also apply in ambiguous frameworks in particular there may exist arbitrage free markets such that the ambiguous agent can guarantee every expected return with a maximum risk bounded from above by zero i e the capital market line risk return becomes vertical for instance in the non ambiguous black and scholes model this property holds for important risk measures such as the absolute deviation or the cvar nevertheless in ambiguous settings adequate increments of the ambiguity level will allow us to recover capital market lines consistent with the empirical evidence the introduction of ambiguity may overcome several caveats of many important pricing models

emerging market characteristics and supply network adjustments in internationalising food supply chains abstract the effect of emerging market characteristics on supply network design is explored through case studies involving international food manufacturers entering emerging markets our findings suggest that institutions and primary and supportive actors may often be considered as potential constraints and appear to have a dominant role in determining the adjustment of supply network s structural attributes a supply network adjustment categorisation emerges from the results as emerging market characteristics may require adjustments in the company s supply network configuration practices and policies in terms of 1 network strategy and position 2 changes to firm boundaries 3 changes to product mobility and 4 changes to geographical configuration these adjustments may go through a life cycle of initial home country convergent practice as firms attempt to roll out established practices later divergent strategies that adapt to emerging market contexts and finally more convergence as contexts develop from a managerial perspective our findings suggest that a proactive network design approach is needed requiring analysis of market characteristics and exploring potential supply network adjustments under four configuration dimensions our research also enables policy makers to better understand the implications of market characteristics to internationalising firms

the strategic impact of resource flexibility in business groups we show that in business groups with efficient internal capital markets resources may be channelled to either more or less profitable units depending on the amount of internal resources a group may exit a market in response to increased competition or channel funds to the subsidiary operating in that market this has important implications for the strategic impact of group membership affiliation to a monopolistic subsidiary can make a cash rich poor firm more less vulnerable to entry deterrence also resource flexibility within a group makes subsidiaries reaction functions flatter thus discouraging rivals strategic commitments when entry is accommodated

fluctuations in uncertainty this review article tries to answer four questions i what are the stylized facts about uncertainty over time ii why does uncertainty vary iii do fluctuations in uncertainty matter and iv did higher uncertainty worsen the great recession of 2007 2009 on the first question both macro and micro uncertainty appears to rise sharply in recessions on the second question the types of exogenous shocks like wars financial panics and oil price jumps that cause recessions appear to directly increase uncertainty and uncertainty also appears to endogenously rise further during recessions on the third question the evidence suggests uncertainty is damaging for short run investment and hiring but there is some evidence it may stimulate longer run innovation finally in terms of the great recession the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in gdp

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

green with envy implications for corporate investment distortions we model agents whose preferences exhibit envy an envious agent s utility increases with what he has and decreases with what others have with this setup we are able to provide a new perspective on the nature of investment distortions with centralized and decentralized capital budgeting systems centralized capital budgeting leads to corporate socialism in investments in multidivisional firms whereas decentralized capital budgeting leads to overinvestment numerous additional testable predictions are also generated

robustly optimal instrument rules and robust control an equivalence result giannoni and woodford 2003a 2003b and hansen and sargent 2003 2004 have recently developed different notions of robust policy and both approaches have been applied in the context of optimal monetary policy in this note i demonstrate that both approaches lead to exactly the same implicit instrument rule for the policy maker in a standard forward looking new keynesian model despite the equivalence of the policy rules the two approaches predict different macroeconomic behavior because of difference assumptions about the formation of expectations

coinsurance effect and bank lines of credit abstract the coinsurance effect hypothesis predicts that firm diversification reduces financial constraints through imperfectly correlated cash flows among segments we empirically test the hypothesis by studying the relation between coinsurance effect and bank lines of credit we find that coinsurance effect is associated with a higher availability of bank lines of credit and that diversified firms hold a higher level of bank lines of credit if they have higher investment opportunities and if they are bank dependent we find that diversified firms hold a higher fraction of corporate liquidity in the form of bank lines of credit due to the coinsurance effect the findings are consistent with the coinsurance effect hypothesis and contribute to the debate on the value consequence of firm diversification by disclosing a specific channel through which firm diversification affects financial constraints

the impact of stock market information production on internal resource allocation abstract we analyze the resource allocation decision of a manager inside a multidivision firm whose compensation is based on the firm s stock price we find that internal investments exhibit a positive correlation across the firms divisions namely when two single division firms merge the optimal investment level in one division becomes more positively related to the investment level in the other division in addition following a spinoff divisional investments decline increase whenever the separated division has a project with a low high sharpe ratio finally multidivision firms trade at a discount which is larger the more diverse the investment sets of the divisions

investment and demand uncertainty this paper investigates the effects of uncertainty on the investment decisions of a sample of italian manufacturing firms using information on the subjective probability distribution of future demand for firms products according to the entrepreneurs the results support the view that uncertainty weakens the response of investment to demand thus slowing down capital accumulation consistent with the predictions of the theory there is considerable heterogeneity in the effect of uncertainty on investment it is stronger for firms that cannot easily reverse investment decisions and for those with substantial market power we show that the negative effect of uncertainty on investment cannot be explained by uncertainty proxying for liquidity constraints

determinants of corporate cash holdings evidence from spin offs abstract we study the factors that influence the cash allocation decision around a spin off using variables suggested by the trade off theory and controlling for the possible endogeneity of leverage and cash ratios spin offs provide an opportunity to examine the determinants of cash allocation at the margin at the time of creation of a new entity our results indicate that managers allocate higher cash ratios to smaller firms and firms with high research and development expense ratio low net working capital ratio and low leverage thus higher cash ratios are correlated with difficulty of raising external capital and reduced availability of cash from internal sources in addition managers also base the cash allocation on observable immediate growth opportunities instead of on long term possible growth an analysis of excess cash ratios defined as the difference between the actual and predicted cash ratios indicate that firms are on average allocated less cash than suggested by trade off models and this deviation in allocated cash from predicted levels is explained only by concurrent profitability of the firms a pecking order theory implication

the dynamics of risk sensitive allocations abstract this paper describes pareto optimal allocations when agents have risk sensitive preferences as formulated by hansen and sargent ieee trans automat control 40 5 1995 968 971 necessary and sufficient conditions are given for the existence and stability of steady states at which pareto weights are time invariant when all agents are risk sensitive with the same power reward function there is a unique interior steady state which is stable when the power is positive and unstable when the power is negative when there is at least one agent with time additive preferences eventually all risk sensitive agents have zero pareto weights

what drives investment cash flow sensitivity around the world an asset tangibility perspective motivated by ongoing debates on investment cash flow sensitivity icfs and its documented decline and disappearance in the u s we investigate the determinants of icfs using firm level data across 41 countries for the 1993 2013 period we document an important role of asset tangibility in explaining the patterns in icfs asset tangibility affects icfs through two channels investment intensity and cash flow persistence as the share of tangible capital investment and cash flow persistence has fallen in developed economies icfs has declined in contrast as developing economies operate with more tangible capital have higher investment rates and more persistent cash flows their icfs is more stable the results support our explanation of icfs as a reflection of capital investment intensity and income predictability rather than a measure of financial constraints

are internal capital markets efficient using segment information from compustat we find that the investment by a segment of a diversified firm depends on the cash flow of the firm s other segments but significantly less than it depends on its own cash flow the investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single segment firms the sensitivity of a segment s investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm s other segments

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

market structure internal capital markets and the boundaries of the firm we study how the creation of an internal capital market an icm can invite strategic responses in product markets that in turn shape firm boundaries icms provide ex post resource flexibility but come with ex ante commitment costs alternatively stand alones possess commitment ability but lack flexibility by creating flexibility integration can sometimes deter a rival s entry but commitment problems can also invite predatory capital raising these forces drive different organizational equilibria depending on the integrator s relation to the product market hybrid organizational forms like strategic alliances can sometimes dominate integration by offering some of its benefits with fewer strategic costs this paper develops a theory of the firm in which internal capital markets affect the ability to compete in product markets in our model a firm s decision to operate an internal capital market affects the fund raising behavior of its product market rivals an internal capital market can either scare away rival firms or else induce them to compete more aggressively raising more capital than they otherwise would in equilibrium these strategic interactions determine the boundaries of the firm

internal versus external capital markets this paper presents a framework for analyzing the costs and benefits of internal versus external capital allocation we focus pritnarily on comparing an internal capital market with bank lending while both represent centralized forms of financing in the former case the financing is owner provided while in the latter ceise it is not we argue that the ownership aspect of internal capital allocation has three important consequences 1 it leads to more monitoring than bank lending 2 it reduces managers entrepreneurial incentives and 3 it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management

three types of ambiguity for each of three types of ambiguity we compute a robust ramsey plan and an associated worst case probability model ex post ambiguity of type i implies endogenously distorted homogeneous beliefs while ambiguities of types ii and iii imply distorted heterogeneous beliefs martingales characterize alternative probability specications and clarify distinctions among the three types of ambiguity we use recursive formulations of ramsey problems to impose local predictability of commitment multipliers directly to reduce the dimension of the state in a recursive formulation we transform the commitment multiplier to accommodate the heterogeneous beliefs that arise with ambiguity of types ii and iii our formulations facilitate comparisons of the consequences of these alternative types of ambiguity

a theory of socialistic internal capital markets abstract we develop a model of a two division firm in which the strong division has on average higher quality investment opportunities than the weak division we show that in the presence of agency and information problems optimal effort incentives are less powerful and thus managerial effort is lower in the strong division this leads the firm to bias its project selection policy against the strong division the selection bias is more severe when there is a larger spread in the average quality of investment opportunities between the two divisions

bank and nonbank financial intermediation conglomerates trade credit arrangements and banks are all instances of financial intermediation however these institutions differ significantly in the extent to which the projects financed absorb aggregate intermediary risk in whether or not intermediation is carried out by a financial specialist in the type of projects they fund and in the type of claims they issue to investors the paper develops a simple unified model that both accounts for the continued coexistence of these different forms of intermediation and explains why they differ specific applications to conglomerate firms trade credit and banking are discussed conglomerates trade credit arrangements and banks are all instances of financial intermediation in each case the conglomerate headquarters supplier bank obtains funds by selling financial securities while in turn providing funds in exchange for a claim on project cash flows 1 however in spite of the fundamental similarity between these forms of financial intermediation important differences exist between them in particular

should business groups be dismantled the equilibrium costs of efficient internal capital markets abstract we analyze the relationship between conglomerates internal capital markets and the efficiency of economy wide capital allocation and we identify a novel cost of conglomeration that arises from an equilibrium framework because of financial market imperfections engendered by imperfect investor protection conglomerates that engage in winner picking stein 1997 internal capital markets and the competition for corporate resources journal of finance 52 111 133 find it optimal to allocate scarce capital internally to mediocre projects even when other firms in the economy have higher productivity projects that are in need of additional capital this bias for internal capital allocation can decrease allocative efficiency even when conglomerates have efficient internal capital markets because a substantial presence of conglomerates might make it harder for other firms in the economy to raise capital we also argue that the negative externality associated with conglomeration is particularly costly for countries that are at intermediary levels of financial development in such countries a high degree of conglomeration generated for example by the control of the corporate sector by family business groups could decrease the efficiency of the capital market our theory generates novel empirical predictions that cannot be derived in models that ignore the equilibrium effects of conglomerates these predictions are consistent with anecdotal evidence that the presence of business groups in developing countries inhibits the growth of new independent firms because of a lack of finance

a reexamination of the conglomerate merger wave in the 1960s an internal capital markets view one possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets examining 392 bidder firms during the 1960s we find the highest bidder returns when financially unconstrained buyers acquire constrained targets this result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing we also find that bidders generally retain target management suggesting that management may have provided companyspecific operational information while the bidder provided capital budgeting expertise