IDEAS home Printed from https://ideas.repec.org/a/anr/refeco/v5y2013p225-244.html
   My bibliography  Save this article

Conglomerate Firms, Internal Capital Markets, and the Theory of the Firm

Author

Listed:
  • Vojislav Maksimovic

    (Department of Finance, Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • Gordon M. Phillips

    (Department of Finance and Business Economics, Marshall School of Business, University of Southern California, Los Angeles, California 90089
    National Bureau of Economic Research, Cambridge, Massachusetts 02138)

Abstract

This article reviews the conglomerate literature, with a focus on recent papers that have cast strong doubt on the hypothesis that conglomerate firms destroy value on average when compared to similar stand-alone firms. Recent work has shown that investment decisions by conglomerate firms are consistent with value maximization; conglomerate firms trade at an average premium relative to single-segment firms when value weighting; and the valuation premia and discounts, both for conglomerates and single-segment firms, are driven by differences in the production of unique differentiated products. A profit-maximizing theory of the firm that considers how firms select their organizational structure can explain these recent findings and much of the large variation in findings in the conglomerate literature. We also review the literature showing how market imperfections create additional benefits and costs for internal capital markets and a potential for managerial distortions.

Suggested Citation

  • Vojislav Maksimovic & Gordon M. Phillips, 2013. "Conglomerate Firms, Internal Capital Markets, and the Theory of the Firm," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 225-244, November.
    • Handle: RePEc:anr:refeco:v:5:y:2013:p:225-244
    as

    Download full text from publisher

    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110112-120933
    Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    efficiency; firm valuation; neoclassical model; multisegment firms; conglomerate discount;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anr:refeco:v:5:y:2013:p:225-244. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: http://www.annualreviews.org (email available below). General contact details of provider: http://www.annualreviews.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.