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The Efficiency of Internal Capital Markets: Evidence from the Annual Capital Expenditure Survey

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  • Sumit Agarwal
  • Victor Souphom
  • Guy Yamashiro

Abstract

We empirically examine whether greater firm diversity results in the inefficient allocation of capital. Using both COMPUSTAT and the Annual Capital Expenditure Survey (ACES) we find firm diversity to be negatively related to the efficiency of investment. However once we distinguish between capital expenditure for structures and equipment, we find that while firms do inefficiently allocate capital for equipment, they efficiently allocate capital for structures. These results suggest that when the decision will have long-lasting repercussions, headquarters will, more often than not, make the correct choice.

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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-08.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 08-08.

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Length: 31 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:cen:wpaper:08-08

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