Group structure and corporate financing.

Summary The analysis of financing policy within group structures is addressed through the study of capital increases and intra-group debt. A single dećisional center defines a global financial strategy, which guides the financing and investment choices of member companies. During a share issue, when two entities are listed, the choice of the issuing firm provides group managers with arbitrage opportunities in the timing of the transaction. Intra-group financial exchanges and the allocation of funds between subsidiaries condition the emergence of an internal capital market. The use of intra-group debt reduces the degree of financial constraints and increases the external debt capacity of subsidiaries. However, the transfer of funds favors the less profitable subsidiaries, which receive more resources and invest more than the efficient entities. The inefficiency of internal capital markets results from the existence of several hierarchical levels (subsidiaries and parent company), and two classes of shareholders (majority and minority).