Why Do Family Business Groups Expand by Creating New Public Firms? The Role of Internal Capital Markets
66 Pages Posted: 27 Oct 2014 Last revised: 31 Aug 2017
Date Written: August 16, 2017
We document a new channel through which a family business group’s internal capital market supports its members. Using data from 44 countries, we provide evidence that groups use internal capital to incubate difficult-to-finance investment projects, facilitating their access to outside equity in a subsequent IPO. Such support is most observable when an IPO allows the family to maintain corporate control and reduce conglomeration costs, and when new-firm financing barriers are high. Our analysis is robust to an identification strategy exploiting exogenous internal capital variations and documents the channels through which groups provide pre-IPO support to their affiliates.
Keywords: Business Groups, Internal Capital Markets, Financing Constraints, IPOs
JEL Classification: G32
Suggested Citation: Suggested Citation