| Summary: | 碩士 === 國立成功大學 === 財務金融研究所 === 100 === This paper examines the relationship among internal capital market efficiency, financing and, investment strategies in diversified firms. Efficient internal capital market indicates that top managers of diversified firms allocate resource from the segments with poor investment opportunities to the segments with rich valuable investment opportunities but facing financing constraint. According to this definition, internal capital market efficiency comes out two advantages. First, efficient internal capital market can against external capital market inefficient and also reduce underinvestment problem. Efficient internal capital market will reduce the need of external financing. Second, when diversified firms allocate their resources on valuable projects, the value of diversified firms will increase. Since increasing value of diversified firms will increase the collateral value, we infer that internal capital market efficiency will positively affect leverage capacity of diversified firms. However, diversification may allure top managers to do perk-seeking and power grapping activities, diversified firms may inefficiently allocate resources. We infer that there is a negative relationship between internal capital market efficiency and investment strategy. Further, due to coinsurance effect, diversification has ability to extend their debt capacity. However, to avoid default risk, debtholders will limit diversified firms on their investment strategies. Previous literatures only examine the relationship between diversification and financing strategies, investment strategies separately. However, they ignore that scale of diversification may not be positively related to internal capital market efficiency. In this paper, we tries to draw a picture on these three factors, and our findings might also have shed light on the paradoxes of prior literature on diversification. Our finding indicates that diversified firms with efficient internal capital market can solve underinvestment problem and increase firm value of diversified firms. Since increasing value of diversified firms will increase the collateral value, diversified firms are capable to extend their debt capacity.
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