scholarly journals The Effect Of Internal Capital Market Of Korean Large Business Groups On Investment Efficiency

2017 ◽  
Vol 33 (5) ◽  
pp. 903-918
Author(s):  
Minwoo Lee ◽  
Yuwon Choi ◽  
Sanghyuk Moon
Keyword(s):  
Capital Markets ◽  
Capital Market ◽  
Stock Price ◽  
Business Groups ◽  
Internal Capital Markets ◽  
Investment Efficiency ◽  
Internal Capital Market ◽  
Factors Affecting ◽  
Controlling Shareholders ◽  
Internal Capital

This study examines whether the effect of funding through internal capital markets on investment efficiency is differentiated by the incentives of controlling shareholders as measured by the divergence between cash flow rights and voting rights of controlling shareholders (hereafter, wedge). To empirically analyze hypotheses of this study, 1,189 firm-year observations were collected from Korean firms listed on the Korea Composite Stock Price Index (KOSPI) belonging to a large business group designated by the Korea Fair Trade Commission over the period from 2005 to 2012. The results of the analysis are as follows. First, we find that the magnitude of internal funding, as measured by total payables to the related parties, is positively (+) associated with investment inefficiency. Second, the interaction variables of total payables to the related parties and the wedge have a significant positive (+) effect on investment inefficiency. In other words, the deterioration of investment efficiency due to the increase in total payables to the related parties was mainly caused by firms with a big wedge. This result suggests that the effect of internal capital markets on investment efficiency of large business groups may be differentiated by the wedge that is proxy of the controlling shareholder’s incentive. This study provides additional evidence on previous studies on the investment efficiency of large business groups by considering both the internal capital market and incentives for funding using the internal capital market, which are important factors affecting the investment of large corporate groups. Also, the results of this study are expected to provide implications for the regulatory policy of large business groups which have recently become an issue in Korea.

Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation*

2019 ◽  
Vol 24 (4) ◽  
pp. 773-811 ◽  
Author(s):  
Raffaele Santioni ◽  
Fabio Schiantarelli ◽  
Philip E Strahan
Keyword(s):  
Cash Flow ◽  
Capital Markets ◽  
Capital Market ◽  
Cash Transfers ◽  
Internal Capital Markets ◽  
Group Affiliation ◽  
Internal Capital Market ◽  
Investment Opportunities ◽  
Internal Capital ◽  
Better Than

Abstract Firms affiliated with business groups survive the stress of the global financial and euro crises better than unaffiliated firms. Using granular data from Italy, we show that better performance stems partly from access to an internal capital market, as the survival value of group-affiliated firms increases with group-wide cash flow. Internal cash transfers increase when banks’ health deteriorates, with funds moving from cash-rich to cash-poor firms and, some evidence suggests, to firms with favorable investment opportunities. Internal capital markets’ role thus increases when external markets (banks) are distressed.

scholarly journals The Internal Capital Markets of Global Dealer Banks

2021 ◽  
Vol 2021 (034) ◽  
pp. 1-30
Author(s):  
Arun Gupta ◽  
Keyword(s):  
Capital Markets ◽  
Capital Market ◽  
Global Financial Crisis ◽  
Aggregate Size ◽  
Market Liquidity ◽  
Internal Capital Markets ◽  
Future Research ◽  
Internal Capital Market ◽  
Internal Capital ◽  
Level I

This study uncovers the existence of a trillion-dollar internal capital market that played a central role in the financing of dealer banks during the 2008 Global Financial Crisis. Hand-collecting a novel set of dealer microdata at the subsidiary level, I present the first set of facts on the evolution of interaffiliate loans between U.S. primary dealers and their (primarily foreign) siblings. First, the aggregate size of these dealer internal capital markets quadrupled from $335 billion in 2001 to $1.2 trillion by 2007. Second, 25 percent of total repurchase agreements and 61 percent of total securities lending reported on U.S. primary dealer balance sheets were sourced internally from sibling dealers by year-end 2007. Third, internal securities lending collapsed by 55 percent during the 2008 crisis. These facts suggest that incorporating internal capital market dynamics may be fruitful for future research on dealer behavior and market liquidity.

scholarly journals Internal Capital Markets And Equity Restructuring

2012 ◽  
Vol 28 (6) ◽  
pp. 1171
Author(s):  
Anwar Boumosleh ◽  
Abdallah Dah ◽  
Mustafa Dah
Keyword(s):  
Capital Markets ◽  
Capital Market ◽  
Internal Capital Markets ◽  
Matched Sample ◽  
Diversification Discount ◽  
Internal Capital Market ◽  
Business Units ◽  
Internal Capital ◽  
Tracking Stock ◽  
Bright Side

Inefficient internal capital market is often blamed for conglomerate diversification discount. While the positive market reaction to spin-off announcements is in conformity with that claim, the abnormal market return on tracking stock announcements is certainly not. This paper investigates the possibility of a bright side for internal capital markets in conglomerates that track business units as a mean of equity restructuring. This paper finds no evidence of a diversification discount for firms with a tracking stock. Partial support on the presence of diversification discount is found for a pair-matched sample of spin-off firms. This paper also finds evidence on more efficient internal capital markets for the sample of tracking-stock firms. The results may suggest that the conglomerates choice between tracking business units or spin-off of business units depends on the efficient allocation of internally generated funds.

With one hand tied behind their back

2017 ◽  
Author(s):  
Graeme Guthrie
Keyword(s):  
New York ◽  
Capital Markets ◽  
Capital Market ◽  
Cable Television ◽  
Share Repurchases ◽  
Internal Capital Market ◽  
Internal Capital ◽  
External Capital ◽  
Investment Returns ◽  
Break Up

This chapter uses the New York cable television provider Cablevision to describe the way in which boards can delegate some of the task of monitoring management to participants in external capital markets. Unlike a firm’s current shareholders, who have little say over how their funds are allocated, external capital markets provide their funds only if the investment returns are adequate. This chapter shows how managers of firms with substantial cash-generating assets in place can use the collateral that these assets provide to weaken the discipline of external capital markets. It shows how their ability to do this is restricted if the board authorizes share repurchases or special dividends funded by increased borrowing, as these replace “soft” payouts to shareholders with “hard” payouts to bondholders. Managers’ ability to exploit collateral is further restricted if the board uses spinoffs to break up the firm’s internal capital market.

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