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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

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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Bibliographic 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

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  1. Randall Morck & Daniel Wolfenzon & Bernard Yeung, 2005. "Corporate Governance, Economic Entrenchment, and Growth," Journal of Economic Literature, American Economic Association, vol. 43(3), pages 655-720, September.
  2. 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.
  3. David S. Scharfstein & Jeremy C. Stein, 1997. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," NBER Working Papers 5969, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Tarun Khanna & Yishay Yafeh, 2005. "Business Groups and Risk Sharing around the World," The Journal of Business, University of Chicago Press, vol. 78(1), pages 301-340, January.
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Cited by:
  1. Anaïs Hamelin, 2010. "Is there tunneling in Small Business Groups? Evidence from French SMEs," Working Papers CEB 10-003.RS, ULB -- Universite Libre de Bruxelles.

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