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

58 Pages Posted: 26 Jun 2017 Last revised: 29 Apr 2022

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)

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Date Written: June 2017

Abstract

Italy’s economic and banking systems have been under stress in the wake of the Global Financial Crisis and Euro Crisis. Firms in business groups have been more likely to survive this challenging environment, compared to 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 favorable investment opportunities. The ability to borrow externally provides additional funds that are shared across group affiliated firms. Our results highlight the benefits of internal capital markets when external capital markets are tight or distressed.

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 (June 2017). NBER Working Paper No. w23541, Available at SSRN: https://ssrn.com/abstract=2992436

Raffaele Santioni (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Fabio Schiantarelli

Boston College - Department of Economics ( email )

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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
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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)

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