Title

Internal Capital Markets And Equity Restructuring

Keywords

Diversification discount; Internal capital markets; Spinoffs; Tracking stocks

Abstract

Inefficient internal capital market is often blamed for conglomerate diversification discount. While the positive market reaction to spin-off announcements is in conformity with that claim, the abnormal market return on tracking stock announcements is certainly not. This paper investigates the possibility of a bright side for internal capital markets in conglomerates that track business units as a mean of equity restructuring. This paper finds no evidence of a diversification discount for firms with a tracking stock. Partial support on the presence of diversification discount is found for a pair-matched sample of spin-off firms. This paper also finds evidence on more efficient internal capital markets for the sample of tracking-stock firms. The results may suggest that the conglomerates' choice between tracking business units or spin-off of business units depends on the efficient allocation of internally generated funds. © 2012 The Clute Institute.

Publication Date

1-1-2012

Publication Title

Journal of Applied Business Research

Volume

28

Issue

6

Number of Pages

1171-1182

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.19030/jabr.v28i6.7402

Socpus ID

84869120018 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/84869120018

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