Internal versus external capital markets and risk-taking

Ching-Yuan Hsiao and Yung-Ming Shiu

International Review of Economics & Finance, 2024, vol. 92, issue C, 503-519

Abstract: We examine the effects of internal capital transfer and external capital issuance on asset risk-taking using a database containing detailed information on capital. Consistent with capital buffer theory, we find that external capital issuance is positively related to risk-taking adjustment. We also find that the funds received via internal capital transfers are negatively related to risk-taking adjustment among affiliated insurers with lower capitalization and negative profitability, underscoring the monitoring role of groups with affiliates' risk-taking behavior. Our results emphasize the sharp contrast between internal capital transfer and external capital issuances on affiliates’ risk-taking.

Keywords: Internal capital transfer; External capital issuance; Risk-taking; Capital buffer theory; Internal capital markets (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:92:y:2024:i:c:p:503-519

DOI: 10.1016/j.iref.2024.02.033

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