Internal versus External Capital Markets
This paper presents a framework for analyzing the costs and benefits of internal vs. external capital allocation. We focus primarily on comparing an internal capital market to 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. We 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.
Year of publication: |
1994-06
|
---|---|
Authors: | Scharfstein, David ; Stein, Jeremy ; Gertner, Robert H. |
Institutions: | National Bureau of Economic Research (NBER) |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation
Froot, Kenneth A., (1990)
-
LDC Debt: Forgiveness, Indexation, and Investment Incentives
Froot, Kenneth A., (1990)
-
Risk Management: Coordinating Corporate Investment and Financing Policies
Froot, Kenneth A., (1992)
- More ...