We analyze a unique dataset from a survey of CFOs of diversified firms to examine four areas of diversification and internal capital markets: causes and financing effects of corporate diversification, capital budgeting processes, capital investment methods, and reallocation policies in internal...

This paper studies the effects of hedge disclosure requirements on corporate risk management and product market competition. The analysis is based on a simple model of market entry and shows that incumbent firms engage in risk management when these activities remain unobserved by outsiders. The...

This article offers an explanation for the substantial variation of credit standards and price competition among banks over the business cycle. As the economic outlook improves, the average default probabilities of borrowers decline. This affects the profitability of screening and causes bank...

We present a model where the employees of a firm have to search for profitable business projects in a changing environment. Employees who have found a successful project in the past period are shown to be reluctant to search for new and better projects leading to corporate inertia. This reduces...

This Paper develops a theory of diversity in work groups within organizations. Diversity is determined by the group members' dfferences in backgrounds. Diverse teams possess more information than homogeneous ones. If beliefs and preferences are expressed openly, diverse teams can reach better...

This paper develops a theory of resource allocation in internal capital markets that is consistent with the empirical finding that multi-division firms bias their investment levels in favor of divisions with weaker investment prospects. Headquarters has private information about the capital...