The role of internal capital markets during financial crises: Evidence from Korean chaebols

Abstract We examine the effective contribution of internal capital markets (ICMs) within business groups during financial crises, focusing on Korean chaebols. Using panel data on Korean firms, we first confirm that chaebol‐affiliated firms show a lower probability of bankruptcy than stand‐alone firms during crises. We also find that chaebol‐affiliated firms with low bankruptcy risk are more likely to be capital providers, while firms with high growth opportunities but higher bankruptcy risks tend to be receivers in ICMs. Moreover, this capital reallocation contributes to improving post‐crisis group‐level performance. Overall, our study highlights the importance and effectiveness of ICMs for Korean business groups during financial crises.