The Capital market subsidies: an empricial study

Abstract

Why do the multisegment firms tend to subsidize operations doing business in industries that experience a major downturn in investment opportunities? This paper a detailed study on this topic. The likelihood of discontinuation of multisegment operations in these industries does not statistically differ from that of single-segment operations. Similarly, patterns of capital expenditures after the shock do not materially deviate between multisegment and single-segment operations. These results indicate that the internal capital markets of multisegment firms are no less efficient than that of single-segment firms in their reaction to a shock to investment opportunities.