Debt Financing and Earnings Management: An Internal Capital Market Perspective

2013 ◽  
Vol 40 (7-8) ◽  
pp. 842-868 ◽  
Author(s):  
Hong-Da Wang ◽  
Chan-Jane Lin
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Debt Financing ◽  
Internal Capital Market ◽  
Internal Capital ◽  
Market Perspective

scholarly journals The Effects Of Financial Drivers On Corporate Diversification: A Comparison Of Listed And Unlisted Italian Firms

2013 ◽  
Vol 29 (5) ◽  
pp. 1459
Author(s):  
Raffaele Stagliano ◽  
Maurizio La Rocca ◽  
Alfio Cariola
Keyword(s):  
Capital Market ◽  
Research Study ◽  
Free Cash Flow ◽  
Corporate Diversification ◽  
Internal Capital Market ◽  
Applied Model ◽  
Unrelated Diversification ◽  
Internal Capital ◽  
Market Perspective ◽  
Unlisted Firms

The purpose of this paper is to investigate the relationships between related and unrelated corporate diversification and financial drivers by comparing listed and unlisted Italian firms. The agency costs of free cash flow and the internal capital market perspective help to explain these relationships. This research study adopts a quantitative approach and uses a unique panel of hand-collected data on Italian firms for the period from 1980 to 2006. The results of the applied model used in this paper reveal the benefits which arise from an efficient internal capital market. These benefits are especially relevant for unrelated diversification decision-making and for unlisted firms. The findings of this paper are confirmed by an analysis of the performances of the sample firms.

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.

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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