Handbook of Empirical Corporate Finance SET

Chapter 8

Conglomerate Firms and Internal Capital Markets*

Vojislav [e-mail]    Robert H. Smith School of Business, University of Maryland, College Park, MD 20742, USA

Gordon [e-mail]    Robert H. Smith School of Business and NBER, University of Maryland, College Park, MD 20742, USA

Abstract

Conglomerate firm production represents more than 50 percent of production in the United States. Given the size of production by conglomerate firms, understanding the costs and benefits of this form of organization has important implications. Several studies have shown that there exists a discount in stock market value of conglomerate firms relative to single-segment focused firms. This discount represents an economically ...