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| Author: | Bernardo, A. E. Luo, J. Wang J.J.D. |
| Title: | A theory of socialistic internal capital markets |
| Journal: | Journal of Financial Economics
2006 : JUN, VOL. 80:3, p. 485-509 |
| Index terms: | economics capital budgeting capital markets finance investment incentives |
| Language: | eng |
| Abstract: | This article sets up a model of a company with two divisions. The stronger of the divisions has more quality investment opportunities than the weaker one. The authors show that in the presence of information and agency problems, optimal effort incentives are less powerful and managerial effort is lower in the strong division. As a result, the company will bias its project selection policy against the strong division. |
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