Our aim is to investigate how business groups source financial supports to less solvent members without compromising group-wide solvency. By examining the mediating roles of other group members’ financial decisions in relation to the effect of focal firm’s financial weakness on internal capital received by focal firm, we find that other group members raise external capital in response of focal firm’s financial weakness, and other members’ external financing further translates into internal capital transfer to focal firm. Moreover, some of our results suggest that other group members also reduce their asset risk-taking to conserve the capacity to provide internal capital to financially weak members. Collectively, our study reveals the interdependencies among focal firm’s financial weakness, other group members’ financial decisions, and internal capital transfer, which shed lights on group-wide solvency management practices.
