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Internal capital market subsidies and industry downturns

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  • Charles A. Brown
  • Chris R. McNeil

Abstract

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.

Suggested Citation

  • Charles A. Brown & Chris R. McNeil, 2008. "Internal capital market subsidies and industry downturns," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(3), pages 337-361, September.
    • Handle: RePEc:bla:acctfi:v:48:y:2008:i:3:p:337-361
    DOI: 10.1111/j.1467-629X.2007.00250.x
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