Empirical Analysis of Motives for Intra-Group Lending in Russian Business Groups (Y. Korotkova, сетевое издание "Электронный журнал "Корпоративные финансы" Journal of Corporate Finance Research", N 1, 2022 г.)

Korotkova Y. Empirical Analysis of Motives for Intra-Group Lending in Russian Business Groups

Y. Korotkova - Engineer, Projects Department, Lomonosov Moscow State University, Faculty of Economics, Moscow, Russia

This study examines the factors behind the companies' financial roles on the internal capital markets of Russian business groups. The main goal is to determine the driving motives for intra-group lending in Russia. To find relevant answers, we use logit- and ordered logit-models based on 2018-2020 panel data for 239 Russian joint stock companies representing 21 business groups. Considering the findings of prior studies on debt financing in business groups, we analyze the influence of company size and age, asset tangibility and profitability, leverage, liquidity, sales growth, and the cash-flow rights of controlling shareholders on the probability of a company being a provider (receiver) of intra-group loans. The novelty of our findings is ensured by the use of data from the State Information Resource of Financial Accounts that were made publicly available in 2020, enabling us to significantly expand the set of companies under examination. The results of this empirical analysis reveal that internal capital markets of Russian business groups serve as a tool for fund reallocation from older and larger, but less capital-intensive and leveraged companies to smaller, more capital-intensive and leveraged members of the group. The findings demonstrate that the financing advantage motive for intra-group lending is currently predominant in the leading Russian business groups. Thus, Russian business groups use their internal capital markets as an alternative source of funds that alleviates the financing constraints of group members. In the context of continuing anti-Russian sanctions, the limited depth of the Russian financial market and a lack of "long" money in the economy, the research results can be useful for financial managers and policymakers seeking ways to enhance the financial security of group-affiliated companies.

Keywords: internal capital market, business group, intra-group loans, financing advantage, tunneling, financing constraints