Abstract
I estimate a dynamic investment model for business groups in which the pyramidal ownership structure generates an agency problem between controlling and minority shareholders. In the model, the controlling shareholder can transfer resources across group firms using intra-group loans, allowing risk sharing and reducing the need for external financing. In a sample of Chilean business groups, I perform counterfactual experiments in which I compare group-affiliated firms with equivalent non-group firms. I find that for the average business group the incremental value of the internal capital market represents roughly 1.5-1.7% of the firm equity value. Although the controlling shareholder gets a larger portion of the value gains, minority shareholders also benefit from these internal transactions.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
