National Bureau of Economic Research · 1996 · 50 citations · 0 references
BusinessEconomicsFinanceCapital StructureCorporate FinanceFinancial EconomicsCapital FlowsCapital MarketsCapital Structure DeterminantsInternal FinancingInvestmentOil EconomicsCash Collateral UseCorporate Cash ConcentrationCorporate Cash HoldingsInternal Financing ConstraintsInternal Financing CostInvesting Cash FlowInvestment Policy EffectsOperating Cash Flow
Using data from the 1986 oil price decrease, I examine the capital expenditures of non-oil subsidiaries of oil companies. I test the joint hypothesis that 1) a decrease in cash/collateral decreases investment, holding fixed the profitability of investment, and 2) the finance costs of different parts of the same corporation are interdependent. The results support this joint hypothesis: oil companies significantly reduced their non-oil investment compared to the median industry investment. The 1986 decline in investment was concentrated in non-oil units that were subsidized by the rest of the company in 1985.