Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation. (12th September 2019)

• Record Type: Journal Article
• Authors: Santioni, Raffaele; Schiantarelli, Fabio; Strahan, Philip E
• Is Part Of: Review of finance. Volume 24:Number 4(2020)
• Page Start: 773
• Page End: 811
• Publication Date: 2019-09-12
• Subjects: G30 -- G32 -- L20; Groups -- Internal capital markets -- Crisis; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfz020
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: Firms affiliated with business groups survive the stress of the global financial and euro crises better than unaffiliated firms. Using granular data from Italy, we show that better performance stems partly from access to an internal capital market, as the survival value of group-affiliated firms increases with group-wide cash flow. Internal cash transfers increase when banks' health deteriorates, with funds moving from cash-rich to cash-poor firms and, some evidence suggests, to firms with favorable investment opportunities. Internal capital markets' role thus increases when external markets (banks) are distressed.