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| Author: | Motta, A. de |
| Title: | Managerial incentives and internal capital markets |
| Journal: | Journal of Finance
2003 : JUN, VOL. 58:3, p. 1193-1220 |
| Index terms: | Capital markets Managerial activities Incentives |
| Language: | eng |
| Abstract: | Capital budgeting in multidivisional firms depends on the external assessment of the whole firm, as well as on headquarters' assessment of the divisions. While corporate headquarters may create value by directly monitoring divisions, the external assessment of the firm is a public good for division managers who, consequently, are tempted to free ride. As the number of divisions increases, the free-rider problem is aggrevated, and internal capital markets substitute for external capital markets in the provision of managerial incentives. |
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