From Public to Internal Capital Markets: The Effects of Affiliated IPOs on Group Firms

Using detailed corporate ownership data, we document the effects of group‐affiliated initial public offerings (IPOs) on other (unlisted) firms in the group. We find evidence of a persistent decrease in leverage (−6%) and increase in employment (+18%). These effects are more pronounced for the more levered, younger and smaller firms within the group. We show that, as compared with stand‐alone IPOs, affiliated IPOs are less likely to be driven by the investment needs of the issuer. Altogether, this evidence is consistent with the hypothesis that affiliated IPOs feed the group's internal capital market, relaxing financial constraints and expanding the workforce in group firms.