Date of Award


Degree Type


Degree Name


Degree Program

Financial Economics


Economics and Finance

Major Professor

Krishnaswami, Sudha

Second Advisor

Demilrap, Ilhan

Third Advisor

Mukherjee, Tarun

Fourth Advisor

Wei, Peihwang

Fifth Advisor

Whitney, Gerald


Does efficient internal investment generally translate into successful external investment activities? In this research we use the internal capital allocation efficiency as a proxy for the efficiency of internal investment, and study whether firms that are internally efficient also make efficient external investment decisions. Our sample consists of multi-segment acquirers that announce acquisitions between 1986 and 2003 (only completed deals are included). We estimate short-term and long-term abnormal performance, excess value and operating performance around mergers in order to measure the success of acquisitions (external investment decisions). Our results indicate that internal capital allocation efficiency is indeed a significant factor in the success of acquisition. Firms that are internally efficient also make efficient external investment decisions. Conversely, internally inefficient firms are also externally inefficient. Thus, our results indicate that internal efficiency can be used as a predictor of the success and efficiency of external investment decisions.


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