Does Internal Capital Market Affiliation Matter for Capital Allocation? An Empirical Analysis

2020 ◽  
Author(s):  
Jorge H. F. Mota ◽  
Mário João Coutinho dos Santos
Keyword(s):  
Empirical Analysis ◽  
Capital Market ◽  
Capital Allocation ◽  
Internal Capital Market ◽  
Internal Capital

Corporate Governance and the Efficiency of Internal Capital Markets

2016 ◽  
Vol 19 (02) ◽  
pp. 1650013 ◽  
Author(s):  
I-Ju Chen
Keyword(s):  
Capital Market ◽  
Capital Investment ◽  
Governance Structure ◽  
Cash Flows ◽  
Capital Allocation ◽  
Disciplinary Power ◽  
Internal Capital Market ◽  
Small Segment ◽  
Internal Capital ◽  
Diversified Firms

This study investigates whether the governance structure of a diversified firm affects its internal capital market and the associated investment efficiencies. We propose that managers of well-governed diversified firms are more subject to the disciplinary power of shareholders and thus are less likely to undertake the inefficient capital investment between divisions. We find that the small segment investment of well-governed diversified firms has less sensitivity with regard to cash flows, but is more sensitive to growth opportunities. Our empirical results suggest that governance mechanisms play an important role in capital allocation among divisions of diversified firms.

Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement

2018 ◽  
Vol 19 (3) ◽  
pp. 309-329
Author(s):  
Florian El Mouaaouy ◽  
Jan Riepe
Keyword(s):  
Capital Market ◽  
Decision Rules ◽  
Fraud Detection ◽  
Capital Allocation ◽  
Financial Accounting ◽  
Internal Capital Market ◽  
Allocation Process ◽  
Internal Capital ◽  
Benford Law

Abstract We propose the application of digit analysis using the Benford law to indicate managerial engagement in the capital allocation process. First, we motivate the potential of the Benford digit analysis to identify allocation outcomes that are shaped by human engagement instead of fixed decision rules. Second, we provide a case study to illustrate how the Benford digit analysis can be used to detect allocations affected by managerial interventions. We are unaware of any study applying the Benford test to internal capital markets, while this approach appears very useful in this context. It is commonly used in the auditing, financial accounting, and fraud detection literature.

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.

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