This paper examines the relationship between cash flow and investment using data from the 1986 oil price decrease. It tests the hypothesis that a decrease in cash flow or collateral reduces investment, holding constant the profitability of investment, and that the finance costs of different parts of the same corporation are interdependent. The results support this 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. The paper explores the effects of the 1986 oil shock on corporate investment, focusing on how different parts of the same firm reacted to the decline in cash flow and collateral. Using the Compustat database, the paper identifies firms with corporate segments in both the oil extraction industry and non-oil industries. It tests the hypothesis that large cash flow/collateral value decreases to a corporation's oil segment decrease investment in its non-oil segment. The paper finds that oil companies significantly reduced their non-oil investment in 1986, with the reductions concentrated in segments that were not self-financing in 1985. These findings are consistent with previous research suggesting that diversified companies tend to subsidize and overinvest in poorly-performing segments. The paper also discusses the role of internal capital markets in allocating capital within firms. It argues that internal capital markets play a nontrivial role in allocating capital, and that combining diverse businesses into a corporate whole alters the investment and financing behavior of the component companies. The paper uses data on corporate segments to examine the relationship between cash flow and investment. It finds that the investment to sales ratio fell in 1986 for most segments, with the fall being significant at the five percent level. The paper also examines the effects of the oil shock on the cost of finance, finding that the cost of external finance presumably rose for segments whose parents' bond ratings were downgraded. The paper concludes that large decreases in cash flow and collateral value decrease investment. It confirms the findings from the literature on cash flow and investment: cash matters. The sample size is fairly small, so the investigation is fairly limited in scope, but the results are consistent with previous research on the nature of value-reducing diversification. The paper also concludes that corporate segments are interdependent, so that combining different firms into a corporate whole has real consequences. The segment data presented here is potentially important for two reasons: it can provide a useful tool for examining questions of traditional interest in corporate finance, and it will also be useful in exploring empirically novel issues in the theory of the firm.This paper examines the relationship between cash flow and investment using data from the 1986 oil price decrease. It tests the hypothesis that a decrease in cash flow or collateral reduces investment, holding constant the profitability of investment, and that the finance costs of different parts of the same corporation are interdependent. The results support this 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. The paper explores the effects of the 1986 oil shock on corporate investment, focusing on how different parts of the same firm reacted to the decline in cash flow and collateral. Using the Compustat database, the paper identifies firms with corporate segments in both the oil extraction industry and non-oil industries. It tests the hypothesis that large cash flow/collateral value decreases to a corporation's oil segment decrease investment in its non-oil segment. The paper finds that oil companies significantly reduced their non-oil investment in 1986, with the reductions concentrated in segments that were not self-financing in 1985. These findings are consistent with previous research suggesting that diversified companies tend to subsidize and overinvest in poorly-performing segments. The paper also discusses the role of internal capital markets in allocating capital within firms. It argues that internal capital markets play a nontrivial role in allocating capital, and that combining diverse businesses into a corporate whole alters the investment and financing behavior of the component companies. The paper uses data on corporate segments to examine the relationship between cash flow and investment. It finds that the investment to sales ratio fell in 1986 for most segments, with the fall being significant at the five percent level. The paper also examines the effects of the oil shock on the cost of finance, finding that the cost of external finance presumably rose for segments whose parents' bond ratings were downgraded. The paper concludes that large decreases in cash flow and collateral value decrease investment. It confirms the findings from the literature on cash flow and investment: cash matters. The sample size is fairly small, so the investigation is fairly limited in scope, but the results are consistent with previous research on the nature of value-reducing diversification. The paper also concludes that corporate segments are interdependent, so that combining different firms into a corporate whole has real consequences. The segment data presented here is potentially important for two reasons: it can provide a useful tool for examining questions of traditional interest in corporate finance, and it will also be useful in exploring empirically novel issues in the theory of the firm.