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Are business cycles within the firm? On the reallocation of financial funds across establishments within firms

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  • Matthias Kehrig

    (Duke University)

Abstract
This paper considers the reallocation of financial funds across establishments within a firm for investment purposes. A new metric is constructed that contrasts investment needs with financial means at the establishment and firm levels. Within a firm, some establishments are net contributors to financial means for investment purposes while others receive funds in order to invest. Both financial reallocation between firms and reallocation across establishments within firms are strongly countercyclical. But within-firm reallocation is about six times as high as the between-firm analogue and also more volatile. The evidence suggests that internal capital markets are an important determinant in a firm's investment policies.

Suggested Citation

  • Matthias Kehrig, 2018. "Are business cycles within the firm? On the reallocation of financial funds across establishments within firms," 2018 Meeting Papers 1225, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1225
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