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.

and participants to the Boston College Macro Lunch and to the Carroll School Finance Seminar for useful comments and suggestions. We are also grateful to Cerved for access to the Gruppi Italiani data set. The views expressed in this paper are those of the authors' alone and do not necessarily represent those of the institutions with which they are affiliated or the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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This paper analyses the main microeconomic determinants of Italian banks' purchases of sovereign debt securities from 2007 to 2013, with special reference to their balance-sheet conditions. The analysis distinguishes two phases of the crisis-the period following the Lehman Brothers collapse and the sovereign debt crisis-and different types of banks (large and small). Results show that banks' specific characteristics and balance-sheet features do matter and that banks use government securities purchases to support their financial and economic conditions. The influence of the balance-sheet conditions differs according to the phase of the crisis and the type of bank.

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