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The Deep Pocket Effect of Internal Capital Markets

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  • Boutin, Xavier
  • Cestone, Giacinta
  • Fumagalli, Chiara
  • Pica, Giovanni
  • Serrano-Velarde, Nicolas

Abstract

This paper provides evidence that incumbents' access to group deep pockets has a negative impact on entry in product markets. Relying on a unique French data set on business groups, the paper presents three major findings. First, consistent with theoretical predictions, the amount of financial resources owned by incumbent-affiliated groups has a negative impact on entry in a market. This suggests that internal capital markets operate within corporate groups and that they have a potential anti-competitive effect. Second, the impact on entry of group financial strength is more important in markets where access to external funding is likely to be more difficult. Third, the more active are internal capital markets, the more pronounced the effect on entry of group deep pockets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7184.

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Date of creation: Feb 2009
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Handle: RePEc:cpr:ceprdp:7184

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Keywords: Business Groups; Deep-Pockets; Internal Capital Markets; Market Entry;

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Cited by:
  1. Almeida, Heitor & Campello, Murillo & Cunha, Igor & Weisbach, Michael S., 2013. "Corporate Liquidity Management: A Conceptual Framework and Survey," Working Paper Series 2013-15, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  2. Michele Bernini & Sarah Guillou & Flora Bellone, 2013. "Firms leverage and export quality:evidence from France," Documents de Travail de l'OFCE 2013-13, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p4sr364g4 is not listed on IDEAS
  4. Lorenzo Ciari & Riccardo De Bonis, 2011. "Entry decisions after deregulation: the role of incumbents' market power," Mo.Fi.R. Working Papers 50, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  5. Sarah Guillou & Michel Bernini & Flora Bellone, 2013. "Firms leverage and export quality evidence from France," Sciences Po publications 2013-13, Sciences Po.

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