|Speaker:||Ran Duchin, University of Washington|
|Date:||Tuesday 24 October 2017|
|Location:||Pearson teaching room, Building: one|
We develop a new method to study internal capital allocation in conglomerates by calculating direct estimates of divisional Tobins qs without relying on standalone firms. We find that divisional qs differ considerably from those of standalone firms, are less volatile, and less sensitive to macroeconomic shocks. In contrast to prior studies that rely on qs of standalone rms, we find that conglomerate investment is highly sensitive to divisional qs. This sensitivity disappears if a division is spun off and runs as a standalone firm. More over, divisional qs predict announcement returns and acquisition volume of diversifying acquisitions. Overall, we provide first estimates of intra-conglomerate qs that shed new light on the systematic diferences between conglomerates and standalone firms and the efficacy of internal resource allocation.