228
Views
1
CrossRef citations to date
0
Altmetric
Feature Articles

Are Internal Capital Markets Ex Post Efficient?

, , &

References

  • Almeida, H., C.-S. Kim, and H. B. Kim. 2015. Internal capital markets in business groups: Evidence from the Asian Financial Crisis. Journal of Finance 70:2539–86. doi:10.1111/jofi.12309
  • Arellano, M., and S. Bond. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58:277–97. doi:10.2307/2297968
  • Ben-David, I., A. Palvia, and C. Spatt. 2017. Banks’ internal capital markets and deposit rates. Journal of Financial and Quantitative Analysis 52:1797–826. doi:10.1017/S0022109017000606
  • Berger, A. N., J. D. Cummins, M. A.Weiss, and H. Zi. 2000. Conglomeration versus strategic focus: Evidence from the insurance industry. Journal of Financial Intermediation 9:323–62. doi:10.1006/jfin.2000.0295
  • Berger, P. G., and E. Ofek. 1995. Diversification’s effect on firm value. Journal of Financial Economics 37:39–65. doi:10.1016/0304-405X(94)00798-6
  • Berry-Stölzle, T. R., A. P. Liebenberg, J. S. Ruhland, and D. W. Sommer. 2012 Determinants of corporate diversification: Evidence from the property–liability insurance industry Journal of Risk and Insurance 79:381–413. doi:10.1111/j.1539-6975.2011.01423.x
  • Berry-Stölzle, T. R., G. P. Nini, and S. Wende. 2014. External financing in the life insurance industry: Evidence from the financial crisis. Journal of Risk and Insurance 81:529–62. doi:10.1111/jori.12042
  • Bessembinder, H., J. F. Coughenour, P. J. Seguin, and M. M. Smoller. 1995. Mean reversion in equilibrium asset prices: Evidence from the futures term structure. Journal of Finance 50:361–75. doi:10.1111/j.1540-6261.1995.tb05178.x
  • Bressan, S., and A. Weissensteiner. 2021. The financial conglomerate discount: Insights from stock return skewness. International Review of Financial Analysis 74:1–13. doi:10.1016/j.irfa.2021.101662
  • Brockett, P. L., A. Charnes, W. W. Cooper, K.-H. Kwon, and T. W. Ruei. 1992. Chance constrained programming approach to empirical analyses of mutual fund investment strategies. Decision Sciences 23:385–408. doi:10.1111/j.1540-5915.1992.tb00396.x
  • Brockett, P. L., L. L. Golden, M.-M. Wen, and C. C. Yang. 2009. Pricing weather derivatives using the indifference pricing approach. North American Actuarial Journal 13:303–15. doi:10.1080/10920277.2009.10597556
  • Buchuk, D., B. Larrain, M. Prem, and F. U. Infante. 2020. How do internal capital markets work? Evidence from the Great Recession. Review of Finance 24: 847–889. doi:10.1093/rof/rfz022
  • Buffett, W. E. 2019. 2018 Berkshire Hathaway annual letter. Berkshire Hathaway. https://www.berkshirehathaway.com/letters/2018ltr.pdf
  • Carhart, M. M. 1997. On persistence in mutual fund performance. Journal of Finance 52:57–82. doi:10.1111/j.1540-6261.1997.tb03808.x
  • Carson, J. M., E. M. Eastman, D. L. Eckles, and J. D. Frederick. 2021. Differences in internal capital market measures: ICM, do you? Working paper. University of Georgia, Georgia.
  • Cummins, J. D., and P. M. Danzon. 1997. Price, financial quality, and capital flows in insurance markets. Journal of Financial Intermediation 6:3–38. doi:10.1006/jfin.1996.0205
  • Cummins, J. D., and P. Trainar. 2009. Securitization, insurance, and reinsurance. Journal of Risk and Insurance 76:463–92. doi:10.1111/j.1539-6975.2009.01319.x
  • Epermanis, K., and S. E. Harrington. 2006. Market discipline in property/casualty insurance: Evidence from premium growth surrounding changes in financial strength ratings. Journal of Money, Credit, and Banking 38:1515–44. doi:10.1353/mcb.2006.0081
  • Fier, S. G., K. A. McCullough, and J. M. Carson. 2013. Internal capital markets and the partial adjustment of leverage. Journal of Banking & Finance 37:1029–39. doi:10.1016/j.jbankfin.2012.11.003
  • Garven, J. R., J. I. Hilliard, and M. F. Grace. 2014. Adverse selection in reinsurance markets. Geneva Risk and Insurance Review 39:222–53. doi:10.1057/grir.2014.13
  • Gertner, R. H., E. Powers, and D. Scharfstein. 2002. Learning about internal capital markets from corporate spin-offs. Journal of Finance 57:2479–506. doi:10.1111/1540-6261.00503
  • Gertner, R. H., D. S. Scharfstein, and J. C. Stein. 1994. Internal versus external capital markets. Quarterly Journal of Economics 109:1211–30. doi:10.2307/2118361
  • Grace, M. F., D. L. Sjoquist, and L. Wheeler. 2007. Insurance premium taxes. National Tax Association Proceedings 100:34–42.
  • Graham, J. R., C. R. Harvey, and M. Puri. 2015. Capital allocation and delegation of decision-making authority within firms. Journal of Financial Economics 115:449–70. doi:10.1016/j.jfineco.2014.10.011
  • Gramlich, J. D., P. Limpaphayom, and S. G. Rhee. 2004. Taxes, keiretsu affiliation, and income shifting. Journal of Accounting and Economics 37:203–28. doi:10.1016/j.jacceco.2003.10.001
  • Griffith, T. G., and A. P. Liebenberg. 2021. The effect of incidental reinsurance assumption on insurer performance. North American Actuarial Journal. 25:503–23. doi:10.1080/10920277.2020.1758152
  • Gron, A. 1994. Capacity constraints and cycles in property-casualty insurance markets. RAND Journal of Economics 25:110–27. doi:10.2307/2555856
  • Gruber, M. J. 1996. Another puzzle: The growth in actively managed mutual funds. Journal of Finance 51:783–810. doi:10.1111/j.1540-6261.1996.tb02707.x
  • Guerry, N., and M. Wallmeier. 2017. Valuation of diversified banks: New evidence. Journal of Banking & Finance 80:203–14. doi:10.1016/j.jbankfin.2017.04.004
  • Hepfer, B. F., J. H. Wilde, and R. J. Wilson. 2020. Tax and nontax incentives in income shifting: Evidence from shadow insurers. The Accounting Review 95:219–62. doi:10.2308/accr-52657
  • Houston, J., C. James, and D. Marcus. 1997. Capital market frictions and the role of internal capital markets in banking. Journal of Financial Economics 46:135–64. doi:10.1016/S0304-405X(97)81511-5
  • Hovakimian, G. 2011. Financial constraints and investment efficiency: Internal capital allocation across the business cycle. Journal of Financial Intermediation 20:264–83. doi:10.1016/j.jfi.2010.07.001
  • Inderst, R., and C. Laux. 2005. Incentives in internal capital markets: Capital constraints, competition, and investment opportunities. RAND Journal of Economics 36:215–28.
  • Ivantsova, A., and J. T. Leverty. 2019. Underwriting discipline and investment risk taking in the property–liability insurance industry. Working paper. University of Wisconsin-Madison, Madison, WI.
  • Jensen, M. C. 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review 76:323–29.
  • Jensen, M. C., and W. H. Meckling. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3:305–60. doi:10.1016/0304-405X(76)90026-X
  • Koijen, R. S., and M. Yogo. 2016. Shadow insurance. Econometrica 84:1265–87. doi:10.3982/ECTA12401
  • Lamont, O. 1997. Cash flow and investment: Evidence from internal capital markets. Journal of Finance 52:83–109. doi:10.1111/j.1540-6261.1997.tb03809.x
  • Markle, K. 2016. A comparison of the tax-motivated income shifting of multinationals in territorial and worldwide countries. Contemporary Accounting Research 33:7–43. doi:10.1111/1911-3846.12148
  • Marović, B., V. Njegomir, and R. Maksimović. 2010. The implications of the financial crisis to the insurance industry—Global and regional perspective. Economic Research 23:127–41. doi:10.1080/1331677X.2010.11517417
  • Matvos, G., and A. Seru. 2014. Resource allocation within firms and financial market dislocation: Evidence from diversified conglomerates. Review of Financial Studies 27:1143–89. doi:10.1093/rfs/hhu005
  • Miller, M. H., J. Muthuswamy, and R. E. Whaley. 1994. Mean reversion of Standard & Poor’s 500 Index basis changes: Arbitrage-induced or statistical illusion? Journal of Finance 49:479–513. doi:10.2307/2329160
  • Neubig, T. S., and M. Vlaisavljevich. 1992. Economic issues in the state taxation of insurance companies. In State taxation of business: Issues and policy options, ed. T. F. Pogue, 217–42. Westport, CN: Greenwood Press.
  • Niehaus, G. 2018. Managing capital via internal capital market transactions: The case of life insurers. Journal of Risk and Insurance 85:69–106. doi:10.1111/jori.12143
  • Ozbas, O., and D. S. Scharfstein. 2009. Evidence on the dark side of internal capital markets. Review of Financial Studies 23:581–99. doi:10.1093/rfs/hhp071
  • Petersen, M. A. 2009. Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies 22:435–80. doi:10.1093/rfs/hhn053
  • Petroni, K. R., and D. A. Shackelford. 1995. Taxation, regulation, and the organizational structure of property-casualty insurers. Journal of Accounting and Economics 20:229–53. doi:10.1016/0165-4101(95)00402-5
  • Powell, L. S., and D. W. Sommer. 2007. Internal versus external capital markets in the insurance industry: The role of reinsurance. Journal of Financial Services Research 31:173–88. doi:10.1007/s10693-007-0007-2
  • Powell, L. S., D. W. Sommer, and D. L. Eckles. 2008. The role of internal capital markets in financial intermediaries: Evidence from insurer groups. Journal of Risk and Insurance 75:439–61. doi:10.1111/j.1539-6975.2008.00267.x
  • Santioni, R., F. Schiantarelli, and P. E. Strahan. 2020. Internal capital markets in times of crisis: The benefit of group affiliation. Review of Finance 24:773–811. doi:10.1093/rof/rfz020
  • Scharfstein, D. S., and J. C. Stein. 2000. The dark side of internal capital markets: Divisional rent-seeking and inefficient investment. Journal of Finance 55:2537–64. doi:10.1111/0022-1082.00299
  • Schedule 1B. Underwriting and investment exhibit – Premiums written. Kansas City, MO: National Association of Insurance Commissioners’ Annual Statement Blank.
  • Schedule 2B. Underwriting and investment exhibit – Losses paid and incurred. Kansas City, MO: National Association of Insurance Commissioners’ Annual Statement Blank.
  • Schedule F. Restatement of Balance Sheet. Kansas City, MO: National Association of Insurance Commissioners’ Annual Statement Blank.
  • Schedule Y. Summary of insurer’s transactions with any affiliates. Kansas City, MO: National Association of Insurance Commissioners’ Annual Statement Blank.
  • Schmid, M. M., and I. Walter. 2009. Do financial conglomerates create or destroy economic value? Journal of Financial Intermediation 18:193–216. doi:10.1016/j.jfi.2008.07.002
  • Shin, H.-H., and R. M. Stulz. 1998. Are internal capital markets efficient? Quarterly Journal of Economics 113:531–52. doi:10.1162/003355398555676
  • Simpson, A. G. 2017. State Farm lost 7 billion on auto in 2016. Insurance Journal 84:30–31.
  • Sommer, D. W. 1996. The impact of firm risk on property-liability insurance prices. Journal of Risk and Insurance 63:501–14. doi:10.2307/253623
  • Stein, J. C. 1997. Internal capital markets and the competition for corporate resources. Journal of Finance 52:111–33. doi:10.1111/j.1540-6261.1997.tb03810.x
  • Stulz, R. 1990. Managerial discretion and optimal financing policies. Journal of Financial Economics 26:3–27. doi:10.1016/0304-405X(90)90011-N
  • Thompson, S. B. 2011. Simple formulas for standard errors that cluster by both firm and time. Journal of Financial Economics 99:1–10. doi:10.1016/j.jfineco.2010.08.016
  • von Dahlen, S., and G. von Peter. 2012. Natural catastrophes and global reinsurance—Exploring the linkages. BIS Quarterly Review :23–35. https://www.bis.org/publ/qtrpdf/r_qt1212e.htm.
  • Wachter, J. A. 2002. Portfolio and consumption decisions under mean-reverting returns: An exact solution for complete markets. Journal of Financial and Quantitative Analysis 37:63–91. doi:10.2307/3594995
  • Wen, M.-M., H. J. Abraham Lin, P. H. Born, C. C. Yang, and C. Wang. 2018. Cash flow risk management in the property/liability insurance industry: A dynamic factor modeling approach. North American Actuarial Journal 22:309–22. doi:10.1080/10920277.2018.1423994
  • Williamson, O. E. 1975. Markets and hierarchies. New York: Collier Macmillan.
  • Winter, R. A. 1994. The dynamics of competitive insurance markets. Journal of Financial Intermediation 3:379–415. doi:10.1006/jfin.1994.1011
  • Yang, C. C. 2013. The impact of the interest rate on insurance/financial industries. North American Actuarial Journal 17:29–40. doi:10.1080/10920277.2013.773243
  • Zheng, L. 2002. Is money smart? A study of mutual fund investors’ fund selection ability. Journal of Finance 54:901–33. doi:10.1111/0022-1082.00131

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.