Capital Markets and Firm Organization: How Financial Development Shapes European Corporate Groups

Sharon Belenzon (), Tomer Berkovitz () and Luis A. Rios ()
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Sharon Belenzon: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Tomer Berkovitz: Graduate School of Business, Columbia University, New York, New York 10027
Luis A. Rios: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Management Science, 2013, vol. 59, issue 6, 1326-1343

Abstract: We investigate the effect of financial development on the formation of European corporate groups. Because cross-country regressions are hard to interpret in a causal sense, we exploit exogenous industry measures to investigate a specific channel through which financial development may affect group affiliation: internal capital markets. Using a comprehensive firm-level data set on European corporate groups in 15 countries, we find that countries with less developed financial markets have a higher percentage of group affiliates in more capital-intensive industries. This relationship is more pronounced for young and small firms and for affiliates of large and diversified groups. Our findings are consistent with the view that internal capital markets may, under some conditions, be more efficient than prevailing external markets, and that this may drive group affiliation even in developed economies. This paper was accepted by Bruno Cassiman, business strategy.

Keywords: corporate groups; financial development; internal capital markets (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (46)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:59:y:2013:i:6:p:1326-1343

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