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Internal capital market subsidies and industry downturns
Author(s) -
Brown Charles A.,
McNeil Chris R.
Publication year - 2008
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2007.00250.x
Subject(s) - subsidy , shock (circulatory) , investment (military) , business cycle , capital (architecture) , monetary economics , economics , business , recession , fixed investment , labour economics , market economy , financial capital , capital formation , macroeconomics , human capital , medicine , history , archaeology , politics , political science , law
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.