News Column

New Finance Findings from Northern Illinois University Reported

May 24, 2014



By a News Reporter-Staff News Editor at Investment Weekly News -- New research on Finance is the subject of a report. According to news originating from DeKalb, Illinois, by VerticalNews correspondents, research stated, "Internal capital markets (ICMs) provide firms an alternative to costly external financing; however, they also provide an avenue to avoid the monitoring associated with issuing external capital. We argue that firms operating inefficient internal capital markets will avoid outside financing."

Our news journalists obtained a quote from the research from Northern Illinois University, "Consistent with this view, conglomerates that cross-subsidize divisions or engage in value-destroying investment avoid external capital market oversight by refraining from issuing both debt and equity. We further show that firms issuing bonds while engaging in value-destroying investment experience yield spreads that are, on average, 46 basis points higher than those of other diversified firms. They similarly experience yield spreads that are 18 basis points higher when they issue syndicated loans."

According to the news editors, the research concluded: "Value-destroying conglomerates also witness SEO announcement returns that are, on average, 1% more negative than firms operating more efficient internal capital markets."

For more information on this research see: Exploitation of the internal capital market and the avoidance of outside monitoring. Journal of Corporate Finance, 2014;25():234-250. Journal of Corporate Finance can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands. (Elsevier - www.elsevier.com; Journal of Corporate Finance - www.elsevier.com/wps/product/cws_home/524467)

The news correspondents report that additional information may be obtained from B.N. Cline, Northern Illinois University, Dept. of Finance, De Kalb, IL 60115, United States. Additional authors for this research include J.L. Garner and A.S. Yore.

Keywords for this news article include: DeKalb, Illinois, United States, Investment and Finance, North and Central America

Our reports deliver fact-based news of research and discoveries from around the world. Copyright 2014, NewsRx LLC


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Source: Investment Weekly News


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