We study business groups’ internal capital markets using a unique data set on intra-group lending in Chile (1990-2009). In line with groups’ financing advantage, firms that borrow internally have higher investment, leverage, and ROE than other firms. At the margin, controlling shareholders have higher cash-flow rights in borrowing firms than in lending firms. However, there is no robust evidence of minority shareholders losing out from intra-group loans as tunneling predicts. Our evidence is consistent with the idea that strict regulation and disclosure requirements for intra-group loans, which are features of the Chilean market, reduce the risk of expropriation in pyramids.


We study the behavior of business groups during the 2008-9 recession using a unique dataset of intra-group loans in an emerging market. Internal credit increases swiftly during the recession. Firms that are more central in the ownership network simultaneously increase lending and borrowing, which is consistent with their role as intermediaries. Receivers of intra-group loans perform significantly better than providers during the recession, and better than non-group firms subsequently. Our results are consistent with winner-picking in internal capital markets. The results also showcase the idea that control rights are essential for credit intermediation at times of distress.
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. These transfers allow risk sharing among group firms and reduce 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 represent 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. 


  • "The determinants of hedging policies: Evidence from a Structural Estimation".
  • "Liquid Asset Holdings of Business Groups: Evidence from an Emerging Market" (with Paulina Rojas and Eduardo Walker).

  • "A learning-based explanation of the forward premium puzzle".