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

Author/Editor:

Yu Shi ; Robert M. Townsend ; Wu Zhu

Publication Date:

May 21, 2019

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 19/111

Subject:

English

Publication Date:

May 21, 2019

ISBN/ISSN:

9781498314411/1018-5941

Stock No:

WPIEA2019111

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

39

Please address any questions about this title to publications@imf.org