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Allocative Efficiency Of Internal Capital Markets
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Book Synopsis Allocative Efficiency of Internal Capital Markets by : Puliyur Sudarsanam
Download or read book Allocative Efficiency of Internal Capital Markets written by Puliyur Sudarsanam and published by . This book was released on 2018 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether equity carve-outs (ECOs) lead to improvements in the functioning of the internal capital markets (ICM) of diversified firms. Divestments, including spin-offs, sell-offs and ECOs, can be employed by firms to improve allocative efficiency. Equity carve-outs, unlike spin-offs and sell-offs, leave the parent's ICM intact but provide the opportunity to enhance internal and external corporate governance mechanisms. Using a US sample of 354 ECOs completed between 1980 and 2013, we find that the allocative efficiency of parents is augmented significantly following ECOs. This increase in allocative efficiency is driven by improvements in the governance characteristics of parent companies.
Book Synopsis Should Business Groups Be Dismantled? The Equilibrium Costs of Efficient Internal Capital Markets by : Heitor Almeida
Download or read book Should Business Groups Be Dismantled? The Equilibrium Costs of Efficient Internal Capital Markets written by Heitor Almeida and published by . This book was released on 2011 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the relationship between conglomerates' internal capital markets and the efficiency of economy-wide capital allocation, and identify a novel cost of conglomeration that arises from an equilibrium framework. Because of financial market imperfections engendered by imperfect investor protection, conglomerates that engage in quot;winner-pickingquot; (Stein, 1997) find it optimal to allocate scarce capital internally to mediocre projects, even when other firms in the economy have higher productivity projects that are in need of additional capital. This bias for internal capital allocation can decrease allocative efficiency even when conglomerates have efficient internal capital markets, because a substantial presence of conglomerates might make it harder for other firms in the economy to raise capital. We also argue that the negative externality associated with conglomeration is particularly costly for countries that are at intermediary levels of financial development. In such countries, a high degree of conglomeration, generated for example by the control of the corporate sector by family business groups, may decrease the efficiency of the capital market. Our theory generates novel empirical predictions that cannot be derived in models that ignore the equilibrium effects of conglomerates. These predictions are consistent with anecdotal evidence that the presence of business groups in developing countries inhibits the growth of new independent firms due to lack of finance.
Book Synopsis Managerial Discretion and Efficiency of Internal Capital Markets by : Cem Demiroglu
Download or read book Managerial Discretion and Efficiency of Internal Capital Markets written by Cem Demiroglu and published by . This book was released on 2019 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the staggered adoption of state-level antitakeover laws to provide causal evidence on whether managerial agency problems affect the allocative efficiency of conglomerate firms. Increases in control slack lead to sharp declines in the Q-sensitivity of investment. The effects are more pronounced for conglomerate firms under stronger pressure from the corporate control market prior to the adoption of antitakeover laws as well as for conglomerate firms with greater financial slack, dispersion of ownership, and diversity of investment opportunities. Our findings establish a novel organizational channel through which takeover threats impact the efficiency of resource allocation in the economy.
Book Synopsis The Efficiency of Internal Capital Markets by : Sumit Agarwal
Download or read book The Efficiency of Internal Capital Markets written by Sumit Agarwal and published by . This book was released on 2012 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We empirically examine whether greater firm diversity results in the inefficient allocation of capital. Using both COMPUSTAT and the Annual Capital Expenditure Survey (ACES) we find firm diversity to be negatively related to the efficiency of investment. However once we distinguish between capital expenditure for structures and equipment, we find that while firms do inefficiently allocate capital for equipment, they efficiently allocate capital for structures. These results suggest that when the decision will have long-lasting repercussions, headquarters will, more often than not, make the correct choice.
Book Synopsis Internal Capital Markets and Investment Efficiency by : Mark D. Walker
Download or read book Internal Capital Markets and Investment Efficiency written by Mark D. Walker and published by . This book was released on 2001 with total page 134 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Adoptions and Eliminations of Economic Profit Plans and Internal Capital Markets Efficiency by : Dobrina Georgieva Jandik
Download or read book Adoptions and Eliminations of Economic Profit Plans and Internal Capital Markets Efficiency written by Dobrina Georgieva Jandik and published by . This book was released on 2013 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Internal capital markets of diversified firms have been associated with inefficient allocation of investment funds across divisions, leading to value losses. Utilizing a sample of diversified firms that adopted or eliminated Economic Profit Plans (EPPs) between 1990 and 2009, we show that adoptions of those plans (that reward profitability, but penalize excessive capital investment) mitigate investment distortions and lead to value gains. Following the adoption of EPPs, diversified firms start allocating investment funds based on growth opportunities of their divisions. EPP adopters lower their divisional investment levels, especially in segments with below-average growth opportunities. The overall investment allocation efficiency improves, and the diversification discount diminishes after the adoption of EPPs. However, EPPs appear to be used only as temporary tools for assessing corporate performance. The plans are adopted primarily by firms expected to immediately generate plan bonuses for management, and they are frequently eliminated by firms with bad accounting performance, and low managerial bonuses. The study contributes to the literature on organizational efficiency, internal capital markets and on the importance of measures based on economic profits or residual income.
Book Synopsis Financial Constraints and Investment Efficiency by : Gayané Hovakimian
Download or read book Financial Constraints and Investment Efficiency written by Gayané Hovakimian and published by . This book was released on 2010 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: The extent to which conglomerates face frictions in external capital markets has implications for their internal capital allocation. We find that, during recessions, when external financing costs are higher, conglomerates improve the efficiency of internal capital markets by increasing the allocation of funds to high q divisions relative to low q divisions. The improvement is significantly higher for conglomerates that are likely to face more binding financial constraints. This evidence suggests that although financial constraints impair managers' ability to undertake positive net present value projects, they improve the quality of project selection by reducing free cash flow and pressuring managers to fund the more valuable investment opportunities. It is consistent with theories stressing the benefits of internal capital markets in the presence of external capital market imperfections.
Book Synopsis Internal Versus External Capital Markets by : Robert H. Gertner
Download or read book Internal Versus External Capital Markets written by Robert H. Gertner and published by . This book was released on 1994 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a framework for analyzing the costs and benefits of internal vs. external capital allocation. We focus primarily on comparing an internal capital market to bank lending. While both represent centralized forms of financing, in the former case the financing is owner-provided, while in the latter case it is not. We argue that the ownership aspect of internal capital allocation has three important consequences: 1) it leads to more monitoring than bank lending; 2) it reduces managers' entrepreneurial incentives; and 3) it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management.
Book Synopsis Capital Investment Management by : Frédéric S. Mueller
Download or read book Capital Investment Management written by Frédéric S. Mueller and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Internal Capital Markets and Bank Holding Company Efficiency by : Karl Weinmayer
Download or read book Internal Capital Markets and Bank Holding Company Efficiency written by Karl Weinmayer and published by . This book was released on 2018 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bank holding companies and its internal capital market have been widely discussed in recent financial literature and especially since the financial crisis which posed the question for regulatory intervention in the financial markets anew. From an economic point of view, the source of financing should not affect the overall firm value or future performance, but empirical evidence suggests that bank holding companies have clear preferences on double leveraging. In this paper, we show the direct effects of equity, debt and double leverage on the firms performance measured by their overall effciency. We show that efficiency is negatively affected by equity financing from parent to subsidiaries and this effect is even more pronounced for the case of double leverage. Our findings indicate that further emphasis from regulators is necessary in order to prevent inefficient fiancing via double leverage, which could be used to circumvent regulatory capital requirements.
Book Synopsis The Trade-Off Between Ex-Post and Ex-Ante Efficient Capital Allocation in Internal Capital Markets and Organizational Form by : Jason Sturgess
Download or read book The Trade-Off Between Ex-Post and Ex-Ante Efficient Capital Allocation in Internal Capital Markets and Organizational Form written by Jason Sturgess and published by . This book was released on 2012 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the efficiency of internal capital markets. I develop a model in which headquarters allocates capital ex-post efficiently to the stronger division and find that this can be ex-ante inefficient. Reallocating capital ex-post to the stronger division reduces ex-ante incentives which can only be restored through monetary compensation. This decreases future investment and may result in the internal capital market being sub-optimal compared with two stand-alone divisions. I show how these effects are particularly important for two types of firm. Finally, ex-ante incentives can be restored by an ex-post inefficient social capital allocation rule, which I show to be optimal.
Book Synopsis Market Efficiency with Respect to Corporate Credit Conditions and Internal Capital Allocation by : Thanh Truc Nguyen
Download or read book Market Efficiency with Respect to Corporate Credit Conditions and Internal Capital Allocation written by Thanh Truc Nguyen and published by . This book was released on 2017 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three key papers, which are presented in chapters 2, 3 and 4. The three chapters examine three different issues in financial risk management and corporate investment. Chapter 2 evaluates the effects of International Monetary Fund (IMF) programs on corporate default risk. Chapter 3 investigates the relationship between internal capital market efficiency and and diversified firm default risk. Chapter 4 studies the role of internal capital market efficiency in predicting the subsequent stock returns of diversified firms. Chapter 3 is the bridge that links the three key chapters in this thesis together. It shares the same scope with chapter 2 in the financial risk management area and with chapter 4 in the corporate investment area.
Book Synopsis Efficient Capital Markets and Accounting by : Thomas R. Dyckman
Download or read book Efficient Capital Markets and Accounting written by Thomas R. Dyckman and published by Prentice Hall. This book was released on 1975 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Reallocation of Corporate Resources and Managerial Incentives in Internal Capital Markets by : Sandro Brusco
Download or read book Reallocation of Corporate Resources and Managerial Incentives in Internal Capital Markets written by Sandro Brusco and published by . This book was released on 2000 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Internal Capital Markets in Business Groups by : Krislert Samphantharak
Download or read book Internal Capital Markets in Business Groups written by Krislert Samphantharak and published by . This book was released on 2007 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends a structural model of investment with costly external finance to firms in business groups, derives an empirical regression counterpart, and uses it to test for the existence of internal capital markets in business groups and various characteristics of a group that tend to affect within-group resource allocation. I use a unique firm-level data submitted to Thailand's Ministry of Commerce as a sample in the empirical sections. The results show that corporate ownership, control rights, and within-group intermediaries tend to facilitate the internal capital markets. Corporate laws that protect minority shareholders lead to the less efficient internal capital markets although the effect is indirectly through the smaller cash flow rights and voting rights of controlling shareholders over the listed firms as compared to the non-listed firms. Groups with more member firms that are structured vertically tend to have more efficient internal capital markets while horizontal structure has no effect on within-group resource allocation. Finally, the more industry diversification, the more efficient the internal capital markets in business groups. In sum, the paper provides empirical evidence from firm-level data that the structure of business groups and corporate governance are related to the investment behavior of firms.
Book Synopsis Research Handbook on Mergers and Acquisitions by : Claire A. Hill
Download or read book Research Handbook on Mergers and Acquisitions written by Claire A. Hill and published by Edward Elgar Publishing. This book was released on 2016-09-30 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: Global in scope and written by leading scholars in the field, the Research Handbook on Mergers and Acquisitions is a modern-day survey of the state of M&A. Its chapters explore the history of mergers and acquisitions and also consider the theory behind the structure of modern transaction documentation. The book also address other key M&A issues, such as takeover defenses; judges and practitioners' perspectives on litigation; the appraisal remedy and other aspects of Federal and state law, as well as M&A considerations in the structure of start-ups. This Handbook will be an invaluable resource for scholars, practitioners, judges and legislators.
Book Synopsis Are Internal Capital Markets Efficient? by : Hyun-Han Shin
Download or read book Are Internal Capital Markets Efficient? written by Hyun-Han Shin and published by . This book was released on 1997 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
