The Deep-Pocket Effect of Internal Capital Markets
Xavier Boutin, National Institute of Statistics and Economic Studies (INSEE)
Giacinta Cestone, Queen Mary University of London, CSEF, and ECGI
Chiara Fumagalli, Università Bocconi, CSEF, and CEPR
Giovanni Pica, Università di Salerno and CSEF
Nicolas Serrano-Velarde, European University Institute
We provide evidence suggesting that incumbents' access to group deep pockets has a negative impact on entry in product markets. Relying on a unique French data set on business groups, our paper presents three major findings. First, the amount of cash holdings owned by incumbent-affiliated groups is negatively related to entry in a market. Second, the impact on entry of group deep pockets is more important in markets where access to external funding is likely to be more difficult. Third, the “entry deterring effect" of group deep pockets is more pronounced when groups have more active internal capital markets. Our findings suggest that internal capital markets operate within corporate groups and that they have a potential anti-competitive effect.
Xavier Boutin, Giacinta Cestone, Chiara Fumagalli, Giovanni Pica, and Nicolas Serrano-Velarde,
"The Deep-Pocket Effect of Internal Capital Markets"
(December 22, 2009).
Fondazione Eni Enrico Mattei Working Papers.
Working Paper 369.