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Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy

Raffaele Santioni (), Fabio Schiantarelli () and Philip Strahan
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Philip Strahan: Boston College

No 929, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Italy’s economic and banking systems have been under stress in the wake of the Global Financial Crisis and Euro Crisis. Firms in business groups have been more likely to survive this challenging environment, compared to unaffiliated firms. Better performance stems from access to an internal capital market, and the survival value of groups increases, inter alia, with group-wide cash flow. We show that actual internal capital transfers increase during the crisis, and these transfers move funds from cash-rich to cash-poor firms and also to those with more favorable investment opportunities. The ability to borrow externally provides additional funds that are shared across group affiliated firms. Our results highlight the benefits of internal capital markets when external capital markets are tight or distressed.

Keywords: Business groups; internal capital markets; financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 G31 G33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: 2017-05-31
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Working Paper: Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy (2017) Downloads
Working Paper: Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy (2017) Downloads
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