Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy

65 Pages Posted: 9 Nov 2017

See all articles by Raffaele Santioni

Raffaele Santioni

Bank of Italy

Fabio Schiantarelli

Boston College - Department of Economics; IZA Institute of Labor Economics

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2017

Abstract

Italy’s economic and banking systems have been under stress in the wake of the global financial crisis and the euro crisis. Our results suggest that firms in business groups have been more likely to survive in this challenging environment than unaffiliated firms. Better performance stems from access to an internal capital market, and the survival value of groups increases, inter alia, with group-wide cash flow. We show that actual internal capital transfers increase during the crisis, and these transfers move funds from cash-rich to cash-poor firms and also to those with more favourable investment opportunities. The ability to borrow externally provides the internal capital market with additional funds, but sharing external capital becomes less important during a crisis. Our overall results highlight the benefits of internal capital markets when external capital markets are tight or distressed.

Keywords: Business Groups, Internal Capital Markets, Financial Crisis

JEL Classification: G01, G21, G31, G33

Suggested Citation

Santioni, Raffaele and Schiantarelli, Fabio and Strahan, Philip E., Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy (October 25, 2017). Bank of Italy Temi di Discussione (Working Paper) No. 1146, Available at SSRN: https://ssrn.com/abstract=3066778 or http://dx.doi.org/10.2139/ssrn.3066778

Raffaele Santioni (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Fabio Schiantarelli

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-4512 (Phone)
617-552-2308 (Fax)

HOME PAGE: http://https://sites.google.com/a/bc.edu/fabio-schiantarelli/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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