Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks

Yu Shi, Robert Townsend and Wu Zhu

No 2019/111, IMF Working Papers from International Monetary Fund

Abstract: Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.

Keywords: WP; subsidiary firm; trade credit; bank financing condition; profit margin; Internal capital markets; business groups; bank lending; China; credit supply shocks; business group; Credit; Supply shocks; Bank credit; Stocks; Asset valuation (search for similar items in EconPapers)
Pages: 39
Date: 2019-05-21
New Economics Papers: this item is included in nep-fdg and nep-tra
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Citations: View citations in EconPapers (5)

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