This paper looks at internal capital markets in financial conglomerates by comparing the responses of small subsidiary and independent banks to monetary policy. I find that internal capital markets in financial conglomerates relax the credit constraints faced by smaller bank affiliates. Further...

We model a firm's demand for liquidity to develop a new test of the effect of financial constraints on corporate policies. The effect of financial constraints is captured by the firm's propensity to save cash out of cash flows (the "cash flow sensitivity of cash"). We hypothesize that...