| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP191021 |
| Author Name | : Akanksha Saxena and Shilpi Banerjee |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 10 |
In this study, we examine the phenomenon of the existence of internal capital market among business group firms. Researchers in this field use the existence of the internal capital as a base to explain the difference between group and stand-alone firms with respect to various financing decisions. Using a panel of Indian listed firms, we analyze the equity and debt components of the internal capital market. We find that for group firms, the debt component of internal capital exists mainly in the form of intercorporate loans. And among equity components, it exists in the form of promoter and intercorporate shareholdings. However, for stand-alone firms, debt from promoters' loans, fixed deposits from promoters and deferred credit are higher and so are equity from persons acting as promoters and institutions and Hindu Undivided Families (HUFs).
Business group affiliation is a common phenomenon around the world. However, in emerging
market economies, business groups have a strong presence and predominance over most of
the business activities. This is because of certain market imperfections that emerging
economies face, such as underdeveloped capital, labor and product markets and at the same
time weak corporate governance and control. Business groups replicate the functions of
such institutions and fill the voids of market imperfections (Khanna and Palepu, 2000; and
Gopalan et al., 2007).
Business group firms take different structural forms in different countries, but they usually
have an independent legal structure with some formal and informal ties connecting them.
These formal and informal ties are what differentiate them from non-group-affiliated firms.
Research on business group affiliation has focused on various aspects of corporate finance
literature to analyze the impact of group affiliation and to see if the impact on various
aspects is good or bad. Earlier research has focused on the difference in capital structure of
both business group-affiliated firms and non-group-affiliated firms (Manos et al., 2007; and