INTERNAL CAPITAL-MARKETS AND THE COMPETITION FOR CORPORATE RESOURCES

This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to enga ge in ''winner-picking''-the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dime nsion, headquarters can create value even when it cannot help at all t o relax overall firm-wide credit constraints. The model implies that i nternal capital markets may sometimes function more efficiently when h eadquarters oversees a small and focused set of projects.