Family Business Group Expansion Through IPOs: The Role of Internal Capital Markets in Financing Growth While Preserving Control

In many economies around the world, new firm financing often occurs through IPOs affiliated with existing public firms, thereby propagating business groups. Using a global dataset, we show this funding structure helps groups expand, while still maintaining control over existing members. To support this on-going need to establish new firms, groups use internal capital to partially meet the external financing needs of capital intensive projects, making an eventual IPO more feasible. Within a group, the location of internal funds predicts which affiliates provide pre-IPO investments. This support provides group IPOs with significant advantages in the going-public process over non-group IPOs.