Working Paper: CEPR ID: DP7184
Authors: Xavier Boutin; Giacinta Cestone; Chiara Fumagalli; Giovanni Pica; Nicolas Serrano Velarde
Abstract: This paper provides evidence 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, the paper presents three major findings. First, consistent with theoretical predictions, the amount of financial resources owned by incumbent-affiliated groups has a negative impact on entry in a market. This suggests that internal capital markets operate within corporate groups and that they have a potential anti-competitive effect. Second, the impact on entry of group financial strength is more important in markets where access to external funding is likely to be more difficult. Third, the more active are internal capital markets, the more pronounced the effect on entry of group deep pockets.
Keywords: business groups; deep pockets; internal capital markets; market entry
JEL Codes: G30; L13; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Access to external funding (O36) | Market entry (L17) |
| Group financial strength (G32) | Market entry (L17) |
| Incumbents' cash holdings (G32) | Market entry (L17) |
| Activity level of internal capital markets (G31) | Market entry deterrence (L11) |
| Individual firm liquidity (G33) | Market entry (L17) |