Diversi®cation and the value of internal capital markets: The case of tracking stock
نویسندگان
چکیده
Diversi®ed ®rms trade at a discount relative to comparable portfolios of stand-alone ®rms. One explanation is that these ®rms have inecient internal capital markets. We examine the link between ®rm value and the value of internal capital markets using a new form of corporate restructuring called tracking stock. We present a model that illustrates that the announcement eect of a tracking stock equity restructuring conveys information about the marketÕs assessment of the value of a ®rmÕs internal capital market. We develop a measure of the pro®tability of the internal capital market, and we ®nd a strong positive relation between it and tracking stock announcement eects, a ®nding consistent with our model. Ó 2000 Elsevier Science B.V. All rights reserved. JEL classi®cation: G14; G30; G32; G34
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