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How Do Internal Capital Markets Work? Evidence from the Great Recession

Buchuk, D., Larrain, B., Prem, M. & Urzúa, F. ORCID: 0000-0003-4681-7684 (2019). How Do Internal Capital Markets Work? Evidence from the Great Recession. Review of Finance, 24(4), pp. 847-889. doi: 10.1093/rof/rfz022


We study the inner workings of internal capital markets during the 2008-9 recession using a unique dataset of loans between business-group firms in an emerging market. Intra-group loans increase quickly during the recession. Firms that are more central in the ownership network simultaneously increase lending and borrowing. Acting like simple intermediaries, central firms do not increase net lending. Our results imply that formal control rights are essential for intermediation in internal capital markets, particularly during distress. In line with previous results on winner-picking, receivers of intra-group loans are high-Q, financiallyconstrained firms, which also perform significantly better than providers during the recession.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Finance following peer review. The version of record, David Buchuk, Borja Larrain, Mounu Prem, Francisco I Urzúa, How Do Internal Capital Markets Work? Evidence from the Great Recession, Review of Finance, , rfz022,, is available online at:
Publisher Keywords: Internal capital markets, great recession, business groups, centrality, control rights
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
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