The Deep-Pocket Effect of Internal Capital Markets

The Deep-Pocket Effect of Internal Capital Markets

Xavier Boutin, Giacinta Cestone, Chiara Fumagalli, Giovanni Pica, Nicolas Serrano-Velarde

Series number :

Serial Number: 

Date posted :

August 01 2009

Last revised :

October 30 2018
SSRN Share


  • business groups • 
  • cash holdings • 
  • Internal Capital Markets • 
  • Deep-Pockets • 
  • Market Entry.

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.

Published in

Published in: 
Journal of Financial Economics 109 (1), 122-145 | FEEM Working Paper No. 108.2009 | Centro Studi Luca d'Agliano Development Studies Working Paper No. 341 | CEPR Discussion Paper No. DP7184


Real name:
Xavier Boutin
Real name:
Chiara Fumagalli
Real name:
Giovanni Pica
Real name:
Nicolas Serrano-Velarde