In "The Effect of Financing Sources on the Usefulness of Financial Reporting Quality in Guiding Investments," Kevin Sun shows that ineffective monitoring and capital rationing
by shareholders and banks, due to information asymmetry, may result in a lack of management's investment responses to changes in growth opportunities.
Credit committees were often approving only 25 per cent of viable applications due to capital rationing
and taking a very selective stance.
The continued impact of that capital rationing
can be seen even now as some of the UK's biggest banks withdraw from parts of the SME lending market such as asset finance.
A company may adopt a posture of capital rationing
because it is unwilling to use external sources of financing for its capital expenditures.
The case provides an opportunity to consider the effects of capital rationing
IRR has also been criticised because it doesn't always correctly evaluate mutually exclusive projects or ensure the best allocation of resources when capital rationing
The impact of liability risk on the cost of capital can be significant and may lead to capital rationing
While it is typically assumed that all value-generating projects should be accepted, Shapiro addresses the important issue of limited project choice due to capital rationing
or mutual exclusivity in the chapter's appendix.
It shows that such programs may, in addressing information deficiencies, serve to uncover various other barriers such as constrained information flows within firms and capital rationing
Such underinvestment, or capital rationing
, as a result of adverse selection is consistent with shareholders curtailing informational rents earned by their privately informed managers at the expense of reduced efficiency (e.
Successful financial managers must arrange funding from various sources, some of which are not traditional lenders; consider strict capital rationing
for new capital projects; ally with partners to meet the company's strategic mission; and be prepared to motivate credit sources with equity sweeteners.
On the topic of planning he talks about capital rationing
and shows how a nine-step Heuristic approach works in the process of selecting a project from a list of several.