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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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Bibliographic Info

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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References

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Cited by:
  1. Michele Bernini & Sarah Guillou & Flora Bellone, 2013. "Firms' Leverage and Export Quality: Evidence from France," GREDEG Working Papers 2013-29, Groupe de REcherche en Droit, Économie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  2. Sarah Guillou & Michel Bernini & Flora Bellone, 2013. "Firms leverage and export quality evidence from France," Sciences Po publications 2013-13, Sciences Po.
  3. 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.

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