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Are business groups different from other family firms? Evidence from corporate investments during political uncertainty

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  • Wadhwa, Kavita
  • Syamala, Sudhakara Reddy

Abstract

Using a large sample of Indian family firms, we examine the investment behaviour of group-affiliated family firms versus standalone family firms during local state elections. While state elections negatively affect corporate investments, family firms invest more than non-family firms. Therefore, using a difference-in-difference estimation, we find that group-affiliated family firms invest significantly more than standalone family firms. Additionally, we find no evidence of distortive investments by group-affiliated family firms due to political pressure; rather, it appears that the unique structure allows these firms to make value-relevant investments when other firms adopt a conservative approach. Overall, our study improves the understanding of family firm investments during periods of political uncertainty.

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  • Wadhwa, Kavita & Syamala, Sudhakara Reddy, 2023. "Are business groups different from other family firms? Evidence from corporate investments during political uncertainty," Emerging Markets Review, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ememar:v:54:y:2023:i:c:s1566014122000644
    DOI: 10.1016/j.ememar.2022.100947
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    Cited by:

    1. Purvi Jhawar & Jayanta Kumar Seal, 2023. "Political Uncertainty and Initial Public Offerings: A Literature Review," IJFS, MDPI, vol. 11(2), pages 1-17, June.

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    More about this item

    Keywords

    Political uncertainty; Corporate investments; Family business groups; Stand-alone family firms; Emerging markets; India; Internal capital markets; Elections; Political connections;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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