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Innovation in Business Groups

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Author Info
Sharon Belenzon
Tomer Berkovitz

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Abstract

Using novel data on European firms, this paper examines the effect of business group affiliation oninnovation. We find that business groups foster the scale and novelty of corporate innovation. Groupaffiliation is particularly important in industries that rely more on external finance and have a higherdegree of information asymmetry. We also find that the innovation of affiliates is less sensitive tooperating cash flows. We interpret our results as supporting the 'bright side' of business groupinternal capital markets and explain how legal boundaries between group affiliates mitigate theinefficiencies found in internal capital markets of US conglomerates.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0833.

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Date of creation: Nov 2007
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Handle: RePEc:cep:cepdps:dp0833

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Keywords: business groups innovation internal capital markets

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Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

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