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.
Relation:
International Review of Economics and Finance 92, p.503-519
