Internal Capital Market Efficiency of Belgian Holding Companies

In this paper, we raise the following two questions. (1) Do Belgian holding companies operate
an internal capital market to transfer financial resources amongst their subsidiaries? And if yes, (2)
is the internal capital market efficient? To answer the first question, we check if group cash flow
is a determinant of the group members investment spending. The answer is positive if the holding
company’s subsidiary is affiliated to a coordination center and negative otherwise. To answer the
second question, we evaluate if internal transfers are driven by efficiency. From our estimations, we
cannot conclude that Belgian Holding companies have an efficient internal capital market.