Funding Contagion through Common Owners

Borja Larrain, Giorgo Sertsios and Francisco Urzúa

The Review of Corporate Finance Studies, 2025, vol. 14, issue 2, 608-648

Abstract: Funding contagion is the impaired ability of a firm to raise external funds when negative shocks hit other firms under the same owner. We study this possibility with pairs of private firms in unrelated industries that share a large common shareholder. We find that a firm’s debt growth and financial leverage go down when the partner firm experiences negative shocks. Our results are consistent with creditors contracting the credit supply because of cash flow cross-pledging between related firms. Funding contagion increases when control rights are strong, and the credit market is less developed. (JEL G30, G32)

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/rcfs/cfad019 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:14:y:2025:i:2:p:608-648.

Access Statistics for this article

The Review of Corporate Finance Studies is currently edited by Andrew Ellul

More articles in The Review of Corporate Finance Studies from Society for Financial Studies
Bibliographic data for series maintained by Oxford University Press ().