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The Deep-Pocket Effect of Internal Capital Markets

64 Pages Posted: 8 Sep 2009 Last revised: 7 Apr 2015

Xavier Boutin

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

Giacinta Cestone

Cass Business School, City University London; ECGI; Centre for Studies in Economics and Finance (CSEF)

Chiara Fumagalli

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Giovanni Pica

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM); University of Milan - Centro Studi Luca d'Agliano (LdA); University of Naples Federico II - CSEF - Center for Studies in Economics and Finance

Nicolas Andre Benigno Serrano-Velarde

Bocconi University

Multiple version iconThere are 3 versions of this paper

Date Written: July 14, 2012

Abstract

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

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

Xavier Boutin

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

18, Boulevard Adolphe-Pinard
92244 Malakoff Cedex
France

Giacinta Cestone (Contact Author)

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ECGI ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Studies in Economics and Finance (CSEF) ( email )

84084 Fisciano Salerno
Italy

HOME PAGE: http://www.csef.it

Chiara Fumagalli

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 5836 5311 (Phone)
+39 02 5836 5318 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Giovanni Pica

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy

University of Milan - Centro Studi Luca d'Agliano (LdA) ( email )

Via P. Amedeo 34
Milano, Mi 20122
Italy

University of Naples Federico II - CSEF - Center for Studies in Economics and Finance ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Nicolas Andre Benigno Serrano-Velarde

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://https://sites.google.com/site/nicolasserranovelarde/

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