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The Bright Side of Internal Capital Markets
Author(s) -
Khanveen,
Tice Sheri
Publication year - 2001
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00377
Subject(s) - debt , productivity , monetary economics , investment (military) , business , capital expenditure , capital (architecture) , capital market , economics , labour economics , industrial organization , finance , macroeconomics , history , archaeology , politics , political science , law
We examine capital expenditure decisions of discount firms in response to WalMart's entry into their markets. Before WalMart'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 WalMart'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.