The Internal Capital Markets of Business Groups: Evidence from Intra-Group Loans

66 Pages Posted: 14 Oct 2013

See all articles by David Buchuk

David Buchuk

Pontificia Unievrsidad Católica de Chile

Borja Larrain

Pontificia Universidad Catolica de Chile

Mounu Prem

Universidad del Rosario

Francisco Urzúa I.

City University London - Sir John Cass Business School

Date Written: October 4, 2013

Abstract

We study business groups’ internal capital markets using a unique data set on intra-group lending in Chile (1990-2009). In line with groups’ financing advantage, firms that borrow internally have higher investment, leverage, and ROE than other firms. At the margin, controlling shareholders have higher cash-flow rights in borrowing firms than in lending firms. However, there is no robust evidence of minority shareholders losing out from intra-group loans as tunneling predicts. Our evidence is consistent with the idea that strict regulation and disclosure requirements for intra-group loans, which are features of the Chilean market, reduce the risk of expropriation in pyramids.

Keywords: business groups, internal capital markets, expropriation

JEL Classification: G30, G32

Suggested Citation

Buchuk, David and Larrain, Borja and Prem, Mounu and Urzua, Francisco, The Internal Capital Markets of Business Groups: Evidence from Intra-Group Loans (October 4, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2335974

David Buchuk

Pontificia Unievrsidad Católica de Chile ( email )

Santiago
Chile

Borja Larrain (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/

Mounu Prem

Universidad del Rosario ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia

Francisco Urzua

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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