Internal Capital Markets and the Competition for Corporate Resources / Jeremy C. Stein.

Format:

Book

Author/Creator:

Stein, Jeremy C., author.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5101.

NBER working paper series no. w5101

Language:

English

Subjects (All):

Capital market.

Capital market--Mathematical models.

Physical Description:

1 online resource: illustrations (black and white).

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

This paper examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank lender, headquarters has control rights that give it both the authority and the incentive 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 its own relationship with the outside capital market is fraught with agency problems and it therefore cannot help at all to relax overall firm- wide credit constraints. One implication of the model developed here is that internal capital markets may function more efficiently when companies choose relatively focused strategies.

Notes:

Print version record

May 1995.