Family Business Group Expansion Through IPOs: The Role of Internal Capital Markets in Financing Growth While Preserving Control

Management Science, Forthcoming

51 Pages Posted: 27 Oct 2014 Last revised: 6 Jun 2019

See all articles by Ronald W. Masulis

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Peter K. Pham

Australian School of Business - University of New South Wales; Financial Research Network (FIRN)

Jason Zein

UNSW Business School; Financial Research Network (FIRN)

Date Written: June 3, 2019

Abstract

Using data from 44 countries, we document a new channel through which a family business group's internal capital market supports its members. We find that groups use internal capital to incubate difficult-to-finance projects, making it feasible for them to rapidly scale up, thus facilitating their IPO market access. This IPO support role is particularly valuable when groups find capital raising through SEOs less attractive due to control-retention concerns, and in capital markets with high new-firm financing barriers. Unlike carve-outs employed as a corporate restructuring strategy, group-affiliated IPOs primarily appear to serve a group's expansion goals, rather than its liquidation needs.

Keywords: Business Groups, Internal Capital Markets, Financing Constraints, IPOs

JEL Classification: G32

Suggested Citation

Masulis, Ronald W. and Pham, Peter Kien and Zein, Jason, Family Business Group Expansion Through IPOs: The Role of Internal Capital Markets in Financing Growth While Preserving Control (June 3, 2019). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2515164 or http://dx.doi.org/10.2139/ssrn.2515164

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

UNSW Business School
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Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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Singapore

Peter Kien Pham

Australian School of Business - University of New South Wales ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jason Zein (Contact Author)

UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61 2 93855858 (Phone)
+61 2 93855858 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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