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Financial constraints and continental business groups: Evidence from German Konzerns

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Author Info
Gorodnichenko, Yuriy
Schaefer, Dorothea
Talavera, Oleksandr

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Abstract

Using a unique large panel of German firms, we examine whether participation in business groups (Konzerns) reduces the sensitivity of investment to cash flow. The main finding is that the investment sensitivity is significantly reduced for small firms. On the other hand, we do not find clear evidence that medium-sized and large firms participating in Konzerns have different sensitivity compared to that of their stand-alone counterparts. We conclude that the German business model, which embodies key elements of the continental business model, seems to alleviate capital market imperfections for medium-sized and large firms and fails to do so for small firms.

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File URL: http://www.sciencedirect.com/science/article/B7CPK-4TPHRW9-1/2/996c7690d180affe9b3ca4a1de80bdfb
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Publisher Info
Article provided by Elsevier in its journal Research in International Business and Finance.

Volume (Year): 23 (2009)
Issue (Month): 3 (September)
Pages: 233-242
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Handle: RePEc:eee:riibaf:v:23:y:2009:i:3:p:233-242

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Keywords: Concern Business group Investment Liquidity constraints;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-33, March. [Downloadable!] (restricted)
    Other versions:
  2. Khanna, Tarun, 2000. "Business groups and social welfare in emerging markets: Existing evidence and unanswered questions," European Economic Review, Elsevier, vol. 44(4-6), pages 748-761, May. [Downloadable!] (restricted)
  3. Perotti, Enrico C. & Gelfer, Stanislav, 2001. "Red barons or robber barons? Governance and investment in Russian financial-industrial groups," European Economic Review, Elsevier, vol. 45(9), pages 1601-1617, October. [Downloadable!] (restricted)
  4. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December. [Downloadable!] (restricted)
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  5. Randall Morck & Daniel Wolfenzon & Bernard Yeung, 2004. "Corporate Governance, Economic Entrenchment and Growth," NBER Working Papers 10692, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Tarun Khanna & Yishay Yafeh, 2005. "Business Groups and Risk Sharing around the World," Journal of Business, University of Chicago Press, vol. 78(1), pages 301-340, January. [Downloadable!]
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