This paper investigates the divisional investment policies of diversified firms. We find that investment of the smallest division of diversified firms is significantly related to the cash flow of the other segments. We then show that the smallest division's investment is more sensitive to the...

We show that Tobin's q, as proxied by the ratio of the firm's market value to its book value, increases with the firm's systematic equity risk and falls with the firm's unsystematic equity risk. Further, an increase in the firm's total equity risk is associated with a fall in q. The negative...

Using segment information from Compustat from 1978 through 1992, we find that investment by a segment of a diversified firm depends on the cash flow of the firm's other segments. The investment by segments of highly diversified firms is larger and less sensitive to their cash flow than the...

The evidence presented here is inconsistent with variants of corporate finance theory which hold that the option properties of growth opportunities or asset substitution incentives are first-order determinants of equity values, but it is supportive of risk management and capital structure...

We show that Tobin's q, as proxied by the ratio of the firm's market value to its book value, increases with the firm's systematic equity risk and falls with the firm's unsystematic equity risk. Further, an increase in the firm's total equity risk is associated with a fall in q. The negative...