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Internal Capital Market and Investment Decisions in Small and Medium-Sized Groups

In: Small Businesses in the Aftermath of the Crisis

Author

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  • Donato Iacobucci

    (Università Politecnica delle Marche)

Abstract

The main hypothesis of this paper is that firms belonging to business groups are expected to be less financially constrained in their investment policies because they can rely on the transfer of resources from other affiliated companies. This is specifically relevant for small firms and in the presence of external real and financial shocks. The presence of an internal capital market in small and medium-sized groups is tested by comparing the cash flow-investment sensitivity between affiliated and non-affiliated companies. This hypothesis has already been empirically tested. However, up to now empirical studies have referred to large groups in emerging economies. Overall the results confirm the main hypothesis. To the extent that cash flow-investment sensitivity is interpreted as the presence of financial constraints, the results of the paper show that belonging to a business group reduces the financing constraints when raising funds to finance investment.

Suggested Citation

  • Donato Iacobucci, 2012. "Internal Capital Market and Investment Decisions in Small and Medium-Sized Groups," Contributions to Economics, in: Giorgio Calcagnini & Ilario Favaretto (ed.), Small Businesses in the Aftermath of the Crisis, edition 127, pages 211-227, Springer.
    • Handle: RePEc:spr:conchp:978-3-7908-2852-8_11
    DOI: 10.1007/978-3-7908-2852-8_11
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    Cited by:

    1. Giulio Cainelli & Valentina Giannini & Donato Iacobucci, 2020. "Small firms and bank financing in bad times," Small Business Economics, Springer, vol. 55(4), pages 943-953, December.
    2. Giulio Cainelli & Valentina Giannini & Donato Iacobucci, 0. "Small firms and bank financing in bad times," Small Business Economics, Springer, vol. 0, pages 1-11.

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