City Research Online

Abstract

Funding contagion is the impaired ability of a firm to raise external funds when negative shocks hit other firms under the same owner. We study this possibility with pairs of private firms in unrelated industries that share a large common shareholder. We find that a firm’s debt growth and financial leverage go down when the partner firm experiences negative shocks. Our results are consistent with creditors contracting the credit supply because of cashflow cross-pledging between related firms. Funding contagion increases when control rights are strong, and the credit market is less developed.

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Corporate Finance Studies following peer review. The version of record Larrain, B., Sertsios, G. & Urzúa, F. (2023). Funding Contagion through Common Owners. The Review of Corporate Finance Studies, will be available online at: https://academic.oup.com/rcfs/
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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