Internal versus External Capital Markets.
This paper presents a framework for analyzing the costs and benefits of internal versus external capital allocation. The authors focus primarily on comparing an internal capital market with bank lending. While both represent centralized forms of financing, in the former case the financing is owner-provided, while in the latter case it is not. The authors argue that the ownership aspect of internal capital allocation has three important consequences: (1) it leads to more monitoring than bank lending; (2) it reduces managers' entrepreneurial incentives; and (3) it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management. Copyright 1994, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Year of publication: |
1994
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Authors: | Gertner, Robert H ; Scharfstein, David S ; Stein, Jeremy C |
Published in: |
The Quarterly Journal of Economics. - MIT Press. - Vol. 109.1994, 4, p. 1211-30
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Publisher: |
MIT Press |
Saved in:
Online Resource
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