Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks

May 21, 2019

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Format: Chicago

Yu Shi, Robert M. Townsend, and Wu Zhu. Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks, (USA: International Monetary Fund, 2019) accessed December 3, 2024

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.

Summary

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.

Subject: Asset and liability management, Asset valuation, Bank credit, Capital markets, Credit, Economic theory, Financial institutions, Money, Stocks, Supply shocks

Keywords: Asset valuation, Bank credit, Bank financing condition, Bank lending, Business group, Business groups, China, Credit, Credit supply shocks, Internal capital markets, Profit margin, Stocks, Subsidiary firm, Supply shocks, Trade credit, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/111
Stock No:

WPIEA2019111
ISBN:

9781498314411
ISSN:

1018-5941

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