64 Pages Posted: 8 Sep 2009 Last revised: 7 Apr 2015
Date Written: July 14, 2012
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.
Keywords: Business Groups, Cash Holdings, Internal Capital Markets, Deep-Pockets, Market Entry
JEL Classification: G32, G38, L41
Suggested Citation: Suggested Citation
Boutin, Xavier and Cestone, Giacinta and Fumagalli, Chiara and Pica, Giovanni and Serrano-Velarde, Nicolas Andre Benigno, The Deep-Pocket Effect of Internal Capital Markets (July 14, 2012). Journal of Financial Economics (JFE), Forthcoming; ECGI - Finance Working Paper No. 258/2009; FEEM Working Paper No. 108.2009. Available at SSRN: https://ssrn.com/abstract=1469455 or http://dx.doi.org/10.2139/ssrn.1469455