Internal Capital Markets in Dutch Firms
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Internal Capital Markets in Dutch Firms
Bruinshoofd, Allard | Diederen, Bert | Letterie, Wilko
Credit and Capital Markets – Kredit und Kapital, Vol. 35 (2002), Iss. 3 : pp. 437–459
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Allard Bruinshoofd, Maastricht
Bert Diederen, Heerlen
Wilko Letterie, Maastricht
References
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Abstract
Using Dutch segment-level data for the 1995-1998 period, we investigate the presence of internal capital markets. Our findings are as follows. First, we find little evidence of internal capital markets in diversified firms. Second, the investment of a segment of a firm that houses a financial holding or a segment related to financial institutions exhibits significant sensitivity to the cash flows of the firm’s other segments, but is insignificantly related to its own cash flow. This finding does suggest the presence of an internal capital market. Third and last, segments of heavily indebted firms display a significant sensitivity of investment to their own cash flows only and the investment of segments of lightly indebted firms is solely related to the segments’ investment opportunities. (JEL G20, G31, G32, L20)