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The Deep-Pocket Effect of Internal Capital Markets

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  • Xavier Boutin

    (CREST(LEI) and European Commission)

  • Giacinta Cestone

    (Queen Mary University of London, CSEF, and ECGI)

  • Chiara Fumagalli

    (Università Bocconi, CSEF, and CEPR)

  • Giovanni Pica

    (Università di Salerno and CSEF)

  • Nicolas Serrano-Velarde

    (European University Institute)

Abstract

We provide evidence suggesting 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, our paper presents three major findings. First, the amount of cash holdings owned by incumbent-affiliated groups is negatively related to entry in a market. Second, the impact on entry of group deep pockets is more important in markets where access to external funding is likely to be more difficult. Third, the “entry deterring effect" of group deep pockets is more pronounced when groups have more active internal capital markets. Our findings suggest that internal capital markets operate within corporate groups and that they have a potential anti-competitive effect.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.108.

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Date of creation: Dec 2009
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Handle: RePEc:fem:femwpa:2009.108

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

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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, Economie, 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. 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.
  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. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p4sr364g4 is not listed on IDEAS

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