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The Deep-Pocket Effect of Internal Capital Markets

  • Xavier Boutin

    (CREST(LEI) and European Commission (DG Competition - Chief Economist Team)

  • Giacinta Cestone

    ()

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

  • Chiara Fumagalli

    ()

    (Università Bocconi, CSEF and CEPR)

  • Giovanni Pica

    ()

    (Università di Salerno and CSEF)

  • Nicolas Serrano-Velarde

    (European University Institute, Florence)

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 effeect’ 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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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 217.

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Date of creation: 10 Mar 2009
Date of revision: 30 Jun 2012
Publication status: Published with the title 'The Deep-Pocket Eff ect of Internal Capital Markets', The Journal of Financial Economics, 109(1), 122-145, 2013.
Handle: RePEc:sef:csefwp:217
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