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The Deep-Pocket Effect of Internal Capital Markets

Author

Listed:
  • 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.

Suggested Citation

  • Boutin, Xavier & Cestone, Giacinta & Fumagalli, Chiara & Pica, Giovanni & Serrano-Velarde, Nicolas, 2009. "The Deep-Pocket Effect of Internal Capital Markets," Institutions and Markets Papers 55829, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemim:55829
    DOI: 10.22004/ag.econ.55829
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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