Why Do Family Business Groups Expand by Creating New Public Firms? The Role of Internal Capital Markets
68 Pages Posted: 27 Oct 2014 Last revised: 30 Dec 2018
Date Written: August 27, 2017
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 in circumstances where groups find capital raising through IPOs more attractive than SEOs for control-retention reasons, and in markets with high new-firm financing barriers. Unlike carve-outs employed as a corporate restructuring strategy, group-affiliated IPOs appear to primarily serve groups' expansion goals rather than liquidation needs.
Keywords: Business Groups, Internal Capital Markets, Financing Constraints, IPOs
JEL Classification: G32
Suggested Citation: Suggested Citation