The deep-pocket effect of internal capital markets

Xavier Boutin, Giacinta Cestone, Chiara Fumagalli, Giovanni Pica and Nicolas Serrano-Velarde

Journal of Financial Economics, 2013, vol. 109, issue 1, 122-145

Abstract: We provide evidence that incumbent and entrant firms' access to business group deep pockets affects the entry patterns in product markets. Relying on a unique French data set on business groups, our paper shows that entry into manufacturing industries is negatively related to the cash hoarded by incumbent affiliated groups and positively related to entrant groups' cash. In line with theoretical predictions, we find that the impact of group cash holdingson entry is more important in environments where financial constraints are pronounced. The cash holdings of incumbent and entrant groups also affect the survival rate of entrants in the three- to five-year post-entry window. Overall, our findings suggest that internal capital markets operate within corporate groups and affect the product market behavior of affiliated firms by mitigating financial constraints.

Keywords: Business groups; Cash holdings; Internal capital markets; Entry (search for similar items in EconPapers)
JEL-codes: G32 G38 L41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

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Related works:
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2012)
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2012)
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2012)
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2011)
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2009)
Working Paper: The Deep Pocket Effect of Internal Capital Markets (2009)
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2009)
Working Paper: The Deep-Pocket Effect of Internal Capital Markets (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:109:y:2013:i:1:p:122-145

DOI: 10.1016/j.jfineco.2013.02.003

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