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A q Theory of Internal Capital Markets / Min Dai, Xavier Giroud, Wei Jiang, Neng Wang.
- Format:
- Book
- Author/Creator:
- Dai, Min.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w27931.
- NBER working paper series no. w27931
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We propose a tractable model of dynamic investment, spinoffs, financing, and risk management for a multi-division firm facing costly external finance. Our main results are: (1) within-firm resource allocation is based not only on the divisions' productivity--as in "winner picking" models--but also their risk; (2) firms may voluntarily spin off productive divisions to increase liquidity; (3) diversification can reduce firm value in low-liquidity states; (4) corporate socialism makes liquidity less valuable; (5) division investment is determined by the ratio between marginal q and marginal value of cash. We further generalize our model to account for capital redeployability, M&As, and managerial entrenchment.
- Notes:
- Print version record
- October 2020.
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