The Deep-Pocket Effect of Internal Capital Markets

Xavier Boutin, Giacinta Cestone, Chiara Fumagalli, Giovanni Pica and Nicolas Serrano-Velarde
Additional contact information
Giacinta Cestone: Cass Business School, CSEF, and ECGI
Chiara Fumagalli: Universita Bocconi (Department of Economics), CEPR, CSEF, and Paolo Ba Centre

No 1217, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper provides evidence that incumbent and entrant firms' access to business group deep pockets affects entry patterns in product markets. Relying on a unique French data set on business groups, this paper shows that entry in manufacturing industries is negatively related to the cash hoarded by incumbent-affliated groups, and positively related to entrant groups' cash. In line with theoretical predictions, we find that the impact on entry of group cash holdings is more important in environments where financial constraints are pronounced and in more financially dependent sectors. The cash holdings of incumbent and entrant groups also affect the survival rate of entrants in the 3 to 5 year post-entry window. Overall, our findings suggest that internal capital markets operate within corporate groups and affect the product market behavior of affliated 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: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The deep-pocket effect of internal capital markets (2013)
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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