Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Finance |
| Number of pages | 57 |
| Volume | 2009-47 S |
| Publication status | Published - 2009 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2009-47 S |
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Keywords
- internal capital markets
- capital markets
- retail banking
- corporate politics
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Understanding Internal Capital Markets and Corporate Policies. / Cremers, M.; Huang, R.; Sautner, Z.
Tilburg : Finance, 2009. (CentER Discussion Paper; Vol. 2009-47 S).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - Understanding Internal Capital Markets and Corporate Policies
AU - Cremers, M.
AU - Huang, R.
AU - Sautner, Z.
N1 - This is also EBC Discussion Paper 15 S Pagination: 57
PY - 2009
Y1 - 2009
N2 - This study looks inside a large retail-banking group to understand how corporate politics affect internal capital allocation. The group consists of a headquarters organization and about 150 member banks which own the headquarters. Our data is from the firm’s managerial accounting system and covers all cash flows, internal capital transfers, and investments at the local member bank level. We first show that a member bank’s investment (net loan growth) is generally not fully independent from its own cash flow (net deposit growth). Then we show that such constraints are not apparent at more influential member banks, where influence is measured by the divergence of voting rights from ownership rights. The more influential banks are allocated more funds from the headquarters, but also show more restraints in investments when experiencing large deposit inflows. Influence matters more among member banks requiring more information exchanges with the headquarters as a result of more volatile funding requests. Influence also matters more for small business loans, which contain more soft information, than for standardized residential mortgage loans. These results suggest that corporate politics can be used to address allocation inefficiencies resulting from information asymmetries between the headquarters and divisions (member banks in our case).
AB - This study looks inside a large retail-banking group to understand how corporate politics affect internal capital allocation. The group consists of a headquarters organization and about 150 member banks which own the headquarters. Our data is from the firm’s managerial accounting system and covers all cash flows, internal capital transfers, and investments at the local member bank level. We first show that a member bank’s investment (net loan growth) is generally not fully independent from its own cash flow (net deposit growth). Then we show that such constraints are not apparent at more influential member banks, where influence is measured by the divergence of voting rights from ownership rights. The more influential banks are allocated more funds from the headquarters, but also show more restraints in investments when experiencing large deposit inflows. Influence matters more among member banks requiring more information exchanges with the headquarters as a result of more volatile funding requests. Influence also matters more for small business loans, which contain more soft information, than for standardized residential mortgage loans. These results suggest that corporate politics can be used to address allocation inefficiencies resulting from information asymmetries between the headquarters and divisions (member banks in our case).
KW - internal capital markets
KW - capital markets
KW - retail banking
KW - corporate politics
M3 - Discussion paper
VL - 2009-47 S
T3 - CentER Discussion Paper
BT - Understanding Internal Capital Markets and Corporate Policies
PB - Finance
CY - Tilburg
ER -