The economics of capital allocation in firms: Evidence from internal capital markets

Arbeitspapier

We analyze a unique survey dataset to examine the (micro)foundations of capital allocation in firms. Firms employ systems of interconnected measures to counteract agency problems, including layers of approval, divisional budgets, reporting requirements, and compensation schemes. When making funding decisions, top management relies heavily on top-level, nonfinancial information. However, substantial parts of the capital budget do not require top management approval as firms trade off the benefits and costs of decentralization. Even firms with active internal capital markets tilt capital allocation toward relatively even distributions. Within-firm agency problems may result in divisions' restricted access to internal capital.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: KIT Working Paper Series in Economics ; No. 115

Classification and Topics

• Classification: Wirtschaft ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hoang, Daniel ; Gatzer, Sebastian ; Ruckes, Martin E.
• Event: Veröffentlichung
• (who): Karlsruher Institut für Technologie (KIT), Institut für Volkswirtschaftslehre (ECON)
• (where): Karlsruhe
• (when): 2018

Further information

• DOI: doi:10.5445/IR/1000079886
• Handle: http://hdl.handle.net/10419/175352
• URN: urn:nbn:de:swb:90-798861
• Last update: 10.03.2025, 11:42 AM CET