TY  - JOUR
AU  - Shin,Hyun-Han
AU  - Stulz,Rene M.
TI  - An Analysis of Divisional Investment Policies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5639
PY  - 1996
Y2  - June 1996
UR  - http://www.nber.org/papers/w5639
L1  - http://www.nber.org/papers/w5639.pdf
N1  - Author contact info:
René M. Stulz
The Ohio State University
Fisher College of Business
806A Fisher Hall
Columbus, OH 43210-1144
Tel: 614/292-1970
Fax: 614/292-2359
E-Mail: stulz_1@cob.osu.edu
AB  - This paper investigates the divisional investment policies of diversified firms.  We find that investment of the smallest division of diversified firms is significantly related to the cash flow of the other segments.  We then show that the smallest division's investment is more sensitive to the cash flow of the other divisions for firms where one expects aggregate investment to be related to cash flow also, namely low q firms and firms with high leverage.  This and other evidence we provide is consistent with what we call the bureaucratic rigidity hypothesis. This hypothesis states that relative allocations of investment funds in diversified firms are sticky.  We fail to find support for the view that diversified firms allocate more funds to divisions in industries with better investment opportunities
ER  -