Essay 1: An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers We investigate the efficiency, foreclosure, and collusion rationales for vertical integration using a large sample of vertical takeovers. The efficiency rationale posits that vertical integration prevents future holdup between non-integrated suppliers and customers. In contrast, the foreclosure and collusion rationales suggest that vertical integration harms competition. To distinguish between these hypotheses, we examine the wealth effects of the merging firms, acquirer rivals, target rivals, and corporate customers on announcement of vertical takeovers. Our univariate and cross-sectional results suggest that firms alter their vertical boundaries in a manner that is consistent with the efficiency rationale. Our tests do not find evidence supportive of the anti-competitive rationales for vertical integration. Essay 2: Determinants of Firm Vertical Boundaries and Implications for Internal Capital Markets In this paper, we investigate the determinants of vertical relatedness between business segments of multi-segment firms and how vertical relatedness affects the internal allocation of capital. Consistent with theory, we observe a higher degree of vertical relatedness between segments in environments likely to involve contracting problems. Further, there is a greater tendency for investments to flow towards segments with better investment opportunities as the degree of vertical relatedness between business segments in the firm increases. This indicates that internal capital markets function better in the presence of significant vertical relatedness between segments. This finding supports the Stein (1997) model, which suggests that the headquarters is able to do a better job of “winner-picking” when firms operate in related lines of businesses.