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    National Tsing Hua University Institutional Repository > 科技管理學院  > 經濟學系 > 期刊論文 >  Can socialism in internal capital markets occur in the absence of managerial rent seeking?

    Please use this identifier to cite or link to this item: http://nthur.lib.nthu.edu.tw/dspace/handle/987654321/45215

    Title: Can socialism in internal capital markets occur in the absence of managerial rent seeking?
    Authors: Eric Szu-Wen Chou
    教師: 周嗣文
    Date: 2010
    Publisher: Taylor & Francis
    Relation: Applied Economics,Taylor & Francis,Volume 42,Issue 1,2010,Pages 107–120
    Keywords: socialism
    capital markets
    Abstract: Socialism in internal capital markets (SICM) is the phenomenon whereby multi-division firms underinvest in high-profit segments and overinvest in low-profit segments. This article modifies and extends the Scharfstein and Stein (2000) model that explains SICM. The major modification is to abstract from rent-seeking behaviour - a central ingredient that is used by most SICM models and has the side effect of overturning SICM when the underlying rent-seeking game is slightly perturbed. It is shown that when division managers' private benefits are not exactly propotional to their division's production profit, as assumed by Scharfstein and Stein (2000), SICM arises due to the CEO's incentive to extract gain from the trade of capital between his division managers by equalizing their marginal private benefits, instead of accommodating rent-seeking. Furthermore, we show that 'diversification discounts' exist, increase in diversity and decrease in CEO ownership. The results are robust to endogenizing the investors' choice of the total capital provided to the firm, which allows the conditions for aggergate underinvestment or overinvestment to be determined.
    URI: http://ideas.repec.org/a/taf/applec/v42y2010i1p107-120.html
    Appears in Collections:[經濟學系] 期刊論文

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