Market discipline and incentive problems in Conglomerate firms with applications to banking

被引:112
作者
Boot, AWA
Schmeits, A
机构
[1] Univ Amsterdam, Finance Grp, Amsterdam, Netherlands
[2] Washington Univ, John M Olin Sch Business, St Louis, MO 63130 USA
关键词
D O I
10.1006/jfin.2000.0287
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
This paper analyzes the optimality of conglomeration. We show that the Potential benefits of conglomeration depend critically on the effectiveness of market discipline for stand-alone activities. Effective market discipline reduces the benefits of conglomeration. with ineffective market discipline of stand-alone activities, conglomeration would further undermine market discipline, but may nevertheless be beneficial. In particular, when rents are not too high, the diversification benefits of conglomeration dominate the negative incentive effects. A more competitive environment therefore induces conglomeration. We also show that introducing internal cost-of-capital allocation schemes creates internal market discipline that complements the weak external market discipline of a conglomerate. Our analysis sheds light on the Barings debacle and other recent developments in the banking sector, Journal of Economic Literature Classification Numbers: G20, G21, G34. (C) 2000 Academic Press.
引用
收藏
页码:240 / 273
页数:34
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