What do we learn about internal capital markets from equity carve-outs?

Abstract

There is no consensus among academics whether internal capital markets (ICMs) are efficient or not. This study extends current literature by analysing two related questions with the help of a sample of European equity carve-outs (ECOs): First, what is the investors’ average judgement on the existence of ICMs? Second, what are the conditions for ICM efficiency? Investors’ opinion is assessed via the share price reaction to the announcement of an ECO, and ICM activity is measured using a series of variables constructed to reflect the size and the efficiency of a firm’s ICM.