TY  - JOUR
AU  - Stein,Jeremy C.
TI  - Internal Capital Markets and the Competition for Corporate Resources
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5101
PY  - 1995
Y2  - May 1995
UR  - http://www.nber.org/papers/w5101
L1  - http://www.nber.org/papers/w5101.pdf
N1  - Author contact info:
Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
AB  - This paper examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market.  Unlike a bank lender, headquarters has control rights that give it both the authority and the incentive to engage in 'winner-picking' -- the practice of actively shifting funds from one project to another.  By doing a good job in the winner-picking dimension, headquarters can create value even when its own relationship with the outside capital market is fraught with agency problems and it therefore cannot help at all to relax overall firm- wide credit constraints.  One implication of the model developed here is that internal capital markets may function more efficiently when companies choose relatively focused strategies.
ER  -