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Funding Contagion through Common Owners

Author

Listed:
  • Borja Larrain
  • Giorgo Sertsios
  • Francisco Urzúa

Abstract

Funding contagion is the impaired ability of a firm to raise external funds when negative shocks hit other firms under the same owner. We study this possibility with pairs of private firms in unrelated industries that share a large common shareholder. We find that a firm’s debt growth and financial leverage go down when the partner firm experiences negative shocks. Our results are consistent with creditors contracting the credit supply because of cash flow cross-pledging between related firms. Funding contagion increases when control rights are strong, and the credit market is less developed. (JEL G30, G32)

Suggested Citation

  • Borja Larrain & Giorgo Sertsios & Francisco Urzúa, 2025. "Funding Contagion through Common Owners," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 14(2), pages 608-648.
    • Handle: RePEc:oup:rcorpf:v:14:y:2025:i:2:p:608-648.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfad019
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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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