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Business groups, financing constraints and investment: the case of India

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  • Robert Lensink
  • Remco van der Molen
  • Shubashis Gangopadhyay

Abstract

We examine the effect of business group affiliation on corporate investment behaviour in India. More specifically, we test whether group affiliation reduces financing constraints for the affiliated firms. We use a data set containing 694 listed Indian companies for the 1989-97 period. We estimate a simple investment equation and find evidence that the investment-cash flow sensitivity is much lower for group affiliates. This suggests that business group affiliates have better access to external funds than stand-alone firms.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

Volume (Year): 40 (2003)
Issue (Month): 2 ()
Pages: 93-119

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Handle: RePEc:taf:jdevst:v:40:y:2003:i:2:p:93-119

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Cited by:
  1. Saibal Ghosh, 2010. "Affiliation And Firm Performance: Evidence From Indian Business Groups," Manchester School, University of Manchester, vol. 78(3), pages 183-200, 06.
  2. Audretsch, David B. & Weigand, Jurgen, 2005. "Do knowledge conditions make a difference?: Investment, finance and ownership in German industries," Research Policy, Elsevier, Elsevier, vol. 34(5), pages 595-613, June.
  3. Kang Kook Lee & Md. Rabiul Islam, 2009. "Financial Development And Financing Constraints In A Developing Country - The Case Of Bangladesh," Development Research Unit Working Paper Series 09-09, Monash University, Department of Economics.
  4. Rashid Ameer, 2013. "Financial liberalization and firms’ capital structure adjustments evidence from Southeast Asia and South America," Journal of Economics and Finance, Springer, Springer, vol. 37(1), pages 1-32, January.
  5. Zia, Bilal H., 2008. "Export incentives, financial constraints, and the (mis)allocation of credit: Micro-level evidence from subsidized export loans," Journal of Financial Economics, Elsevier, Elsevier, vol. 87(2), pages 498-527, February.
  6. George, Rejie & Kabir, Rezaul & Qian, Jing, 2011. "Investment-cash flow sensitivity and financing constraints: New evidence from Indian business group firms," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 21(2), pages 69-88, April.
  7. Gautam, Vikash, 2011. "Evidence on the dynamics of investment-cash flow sensitivity," MPRA Paper 35431, University Library of Munich, Germany, revised Dec 2011.
  8. Chinmay Pattnaik & James Chang & Hyun Shin, 2013. "Business groups and corporate transparency in emerging markets: Empirical evidence from India," Asia Pacific Journal of Management, Springer, Springer, vol. 30(4), pages 987-1004, December.
  9. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, Elsevier, vol. 86(3), pages 759-795, December.
  10. Sumit Majumdar & Kunal Sen, 2007. "The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India," Public Choice, Springer, Springer, vol. 130(1), pages 209-223, January.

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