Cash Flow and Investment: Evidence from Internal Capital Markets / Owen Lamont.

By:

Lamont, Owen

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5499.Publication details: Cambridge, Mass. National Bureau of Economic Research 1996.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

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Abstract: Using data from the 1986 oil price decrease, I examine the capital expenditures of non-oil subsidiaries of oil companies. I test the joint hypothesis that 1) a decrease in cash/collateral decreases investment, holding fixed the profitability of investment, and 2) the finance costs of different parts of the same corporation are interdependent. The results support this joint hypothesis: oil companies significantly reduced their non-oil investment compared to the median industry investment. The 1986 decline in investment was concentrated in non-oil units that were subsidized by the rest of the company in 1985.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w5499 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w5496 Rational Capital Budgeting in an Irrational World /	nber w5497 Getting Pegged: Comparing the 1879 and 1925 Gold Resumptions /	nber w5498 Pricing Strategy and Financial Policy /	nber w5499 Cash Flow and Investment: Evidence from Internal Capital Markets /	nber w5500 Implied Volatility Functions: Empirical Tests /	nber w5501 Estimating the Productivity of Research and Development: An Exploration of GMM Methods Using Data on French & United States Manufacturing Firms /	nber w5502 Reflections on Ricardian Equivalence /	Next

March 1996.

Using data from the 1986 oil price decrease, I examine the capital expenditures of non-oil subsidiaries of oil companies. I test the joint hypothesis that 1) a decrease in cash/collateral decreases investment, holding fixed the profitability of investment, and 2) the finance costs of different parts of the same corporation are interdependent. The results support this joint hypothesis: oil companies significantly reduced their non-oil investment compared to the median industry investment. The 1986 decline in investment was concentrated in non-oil units that were subsidized by the rest of the company in 1985.