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Cited by 1,551

The DOI matches its Crossref record.

The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment

Scharfstein, David S., Stein, Jeremy C.·2000·The Journal of Finance
DOI 10.1111/0022-1082.00299
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Abstract

We develop a two‐tiered agency model that shows how rent‐seeking behavior on the part of division managers can subvert the workings of an internal capital market. By rent‐seeking, division managers can raise their bargaining power and extract greater overall compensation from the CEO. And because the CEO is herself an agent of outside investors, this extra compensation may take the form not of cash wages, but rather of preferential capital budgeting allocations. One interesting feature of our model is that it implies a kind of “socialism” in internal capital allocation, whereby weaker divisions get subsidized by stronger ones.

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Metadata

Authors
Scharfstein, D. S., & Stein, J. C.
Venue
The Journal of Finance
Publisher
Wiley
Published
2000-12
Volume
55
Issue
6
Pages
2537-2564
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/0022-1082.00299
OpenAlex
W3125062060
Cited by
1,551
References
0
FWCI
217.95
Type
journal article
Language
en
Open access
closed

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CoChat. (2026). Citation check: The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment. https://app.cochat.ai/papers/10.1111/0022-1082.00299
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Scharfstein, D. S., & Stein, J. C. (2000). The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment. The Journal of Finance. https://doi.org/10.1111/0022-1082.00299

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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.

Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).

Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.