How do business group firms utilize internal capital markets?
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 25 September 2009
Abstract
Purpose
The purpose of this study is to provide evidence for how business group firms transfer financial resources among affiliated firms by examining the differences in the level of debt financing and the choices of new equity financing between group affiliated and non‐affiliated firms in an emerging market, Turkey. The role of affiliated banks for internal capital market transactions is also to be examined.
Design/methodology/approach
Univarite analysis and simple pooled OLS regression analysis are performed to examine the role of group affiliation on the level of several debt financing measures. Additionally, a Logit regression analysis is used to analyze the behavior of affiliated firms in their equity financing decisions by issuing new shares.
Findings
Group affiliated firms transfer funds in the group by using transactions such as trade debt, and issuing cash rights and bonus shares. The affiliated firms – especially with a bank in the group – support their higher growth with new equity issues in the forms of cash rights and bonus shares along with higher trade debt. Moreover, non‐affiliated firms utilize a higher percentage of debt to shareholders, while affiliated firms without a bank utilize a higher financial debt. These findings are consistent with the idea that the role of the group bank is very important in financing choices of affiliated firms.
Research limitations/implications
This paper provides direct measures of external and internal funds by focusing on new equity issues and debt structure, which can be applied in different economic environments, rather than using indirect measures or not readily available datasets such as connected party transactions.
Originality/value
The paper provides additional evidence to assess the efficiency of the use of internal capital markets. Moreover, the role of group affiliated banks among affiliated firms has not yet been extensively addressed in the literature and an examination of this issue leads to a better understanding of their roles in diversified business groups.
Keywords
Citation
Gonenc, H. (2009), "How do business group firms utilize internal capital markets?", International Journal of Managerial Finance, Vol. 5 No. 4, pp. 360-375. https://doi.org/10.1108/17439130910987521
Publisher
:Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited