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Internal versus external capital markets and risk-taking

Author

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  • Hsiao, Ching-Yuan
  • Shiu, Yung-Ming

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.

Suggested Citation

  • Hsiao, Ching-Yuan & Shiu, Yung-Ming, 2024. "Internal versus external capital markets and risk-taking," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 503-519.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:503-519
    DOI: 10.1016/j.iref.2024.02.033
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