How Do Internal Capital Markets Work? Evidence from the Great Recession*

Synthetic control methods for comparative case studies: estimating the effect of California’s tobacco control program

David Buchuk, Borja Larrain, Mounu Prem and Francisco Urzúa Infante
Authors registered in the RePEc Author Service: Francisco Urzúa I.

Review of Finance, 2020, vol. 24, issue 4, 847-889

Abstract: We study the inner workings of internal capital markets during the 2008–09 recession using a unique dataset of loans between business group firms in an emerging market. Intragroup loans increase quickly during the recession. Firms that are more central in the ownership network simultaneously increase lending and borrowing. Acting like simple intermediaries, central firms do not increase net lending. Our results imply that formal control rights are essential for intermediation in internal capital markets, particularly during distress. In line with previous results on winner-picking, receivers of intragroup loans are high-Q, financially constrained firms, which also perform significantly better than providers during the recession.

Keywords: Business groups; Centrality; Control rights; Great recession; Internal capital markets (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfz022 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Overlapping Networks of Credit and Control (2017)
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:revfin:v:24:y:2020:i:4:p:847-889.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().