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Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks
Author:
Ms. Yu Shi
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,
Robert M. Townsendnull

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Wu Zhunull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 111
Language:
English
Publication Date:
21 May 2019
DOI:
https://doi.org/10.5089/9781498314411.001
ISBN:
9781498314411
ISSN:
1018-5941
Pages:
39
Keywords:
WP; subsidiary firm; trade credit; bank financing condition; profit margin; Internal capital markets; business groups; bank lending; China; credit supply shocks; business group; Credit; Supply shocks; Bank credit; Stocks; Asset valuation
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2019: Issue 111