Corporate groups,liquidity, and overinvestment by Belgian firms quoted on the Brussels stock exchange

For a sample of large Belgian non-financial firms quoted on the Brussels stock exchange, it is found that investment of firms borrowing on an internal capital market is not determined by internal cash flow, while cash flow has a significant effect on investment for the other firms in the sample. Further analysis indicates that the cash flow effect is caused by overinvestment, not by financing constraints. No evidence is found that firms borrowing on an internal capital market in turn transfer surpluses of funds to other group members by investing in financial fixed assets. © 1998 John Wiley & Sons, Ltd.