Mis-Allocation within Firms: Internal Finance and International Trade

Arbeitspapier

This paper develops a novel theory of capital mis-allocation within firms that stems from managers’ empire building and informational frictions within the organization. Introducing an internal capital market into a two-factor model of multi-segment firms, we show that international competition imposes discipline on managers and reduces capital mis-allocation across divisions, thereby lowering the conglomerate discount. The theory can explain why exporters exhibit a lower conglomerate discount than non-exporters (a new fact we establish). Testing the model’s predictions with data on US companies, results suggest that Chinese import competition significantly reduces managers' over-reporting of costs and improves the allocation of capital within firms.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 9426

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Corporate Finance and Governance: General ; Firm Organization and Market Structure ; Organizational Behavior; Transaction Costs; Property Rights
• Thema: multi-product firms ; trade and organization ; internal capital markets ; conglomerate discount ; China shock

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Doerr, Sebastian ; Marin, Dalia ; Suverato, Davide ; Verdier, Thierry ; Verdier, Thierry
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2021

Weitere Informationen

• Handle: http://hdl.handle.net/10419/248971
• Letzte Aktualisierung: 20.09.2024, 08:22 MESZ