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

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.

Investors’ Perception of Business Group Membership during An Economic Crisis: Evidence from the COVID-19 Pandemic

“…Table 2 also reveals that a larger fraction of unaffiliated firms disappeared from the sample due to trading suspension, delisting or bankruptcy. This observation illustrates the higher survival rate of affiliated firms during crisis (Santioni et al, 2020). The disappearance of the weakest unaffiliated firms from the sample might also explain part of the outperformance of unaffiliated firms during the Recovery period.…”

“…Therefore, access to internal capital markets is likely to be more valuable during such period. This prediction is supported by Santioni et al (2020), who observe that firms rely more on internal capital markets when their bank faces a deteriorating balance sheet. In addition, they also find a higher survival rate for affiliated firms suggesting that mutual insurance might constitute another benefit of business group membership during an economic downturn.…”

“…Additionally, internal capital markets can play the role of a substitute and mitigate financial market failures during economic crises or shocks (Matvos and Seru, 2014). For instance, Buchuk et al (2020) and Santioni et al (2020) document the role played by internal capital markets during the global financial crisis in Chile and Italy. In both cases, access to internal capital markets helps affiliated firms in facing crises.…”

Can R&D investment reduce the impact of COVID‐19 on firm performance?—Evidence from India

“…Business group firms are a set of legally independent firms with informal linkages, including common founding family, sharing of labor and directors, transfer of goods, services and technology, and inter‐corporate loans. The affiliation to a business group improves the survival probability of firms during a crisis (Santioni et al, 2020 ), and group firms perform better than standalone firms during crisis owing to internal capital markets (Almeida et al, 2015 ). The access to internal capital markets is also related to an improved investment efficiency and R&D investment of private business group firms in China (Tan et al, 2018 ).…”

Analisa Harga Komoditas Dunia pada Indeks Harga Saham Sektor Pertambangan di Indonesia

“…Dalam pasar modal terdapat indeks yang berfungsi sebagai indikator tren pasar yang dapat menggambarkan keadaan pasar apakah sedang baik atau sedang buruk. Pergerakan indeks saham yang cenderung turun mengindikasikan harga saham kebanyakan sedang mengalami penurunan, begitu pula sebaliknya (Asmara & Suarjaya, 2018;Santioni, Schiantarelli, & Strahan, 2020).…”