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This paper develops a novel theory of capital mis-allocation within firms that stems from managers’ empire building and informational frictions within the organization. Introducing an internal capital market into a two-factor model of multi-segment firms, we show that international competition...
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suppliers’ decisions to invest, and where underinvestment is more severe for higher productivity firms. A rule of origin offers … within the trading bloc. Such a rule alters behavior for only a subset of suppliers, as some (very-high-productivity …) suppliers comply with the rule in an unconstrained way and some (very-low-productivity) suppliers choose not to comply. For …
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