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Internal Capital Markets: Benefits, Costs, and Organizational Arrangements

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  • Julia Porter Liebeskind

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089-1421)

Abstract

Diversification not only internalizes transactions of goods and services, but it also internalizes transactions of capital. Hence, the value of diversification will depend, inter alia, on whether internal capital markets are relatively efficient or inefficient. This essay reviews and discusses the possible benefits and costs of internal capital markets by conducting a careful comparative institutional analysis. The essay concludes that internal capital markets can add value to lines of business only under a limited number of circumstances. Some recent developments in the organization of internal capital markets in diversified firms can be understood as attempts to increase their efficiency.

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  • Julia Porter Liebeskind, 2000. "Internal Capital Markets: Benefits, Costs, and Organizational Arrangements," Organization Science, INFORMS, vol. 11(1), pages 58-76, February.
    • Handle: RePEc:inm:ororsc:v:11:y:2000:i:1:p:58-76
    DOI: 10.1287/orsc.11.1.58.12568
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    7. Manuel Villasalero, 2018. "Multi-Business Firms, Knowledge Flows and Intra-Network Open Innovations," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(1), pages 162-179, March.
    8. Hyoung-Goo Kang & Richard M. Burton & Will Mitchell, 2021. "How firm boundaries and relatedness jointly affect diversification value: trade-offs between governance and flexibility," Computational and Mathematical Organization Theory, Springer, vol. 27(1), pages 1-34, March.
    9. Dinh, Huy Tran Ngoc & Kei, Nishino & Maulana, Achmad Rizzqi & Koh, Gek Pin & Liu, Yang, 2010. "“Corporate restructuring issues under the holding company structure – The NTT Case in Japan”," MPRA Paper 27349, University Library of Munich, Germany, revised 09 Dec 2010.
    10. Wei-Kang Wang & Irene Wei Kiong Ting & Kuo-Cheng Kuo & Qian Long Kweh & Yan-Heng Lin, 2018. "Corporate diversification and efficiency: evidence from Taiwanese top 100 manufacturing firms," Operational Research, Springer, vol. 18(1), pages 187-203, April.
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    Diversification; Internal Capital Markets;

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