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Investment Financing in Russian Financial-Industrial Groups


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  • Enrico C. Perotti

    (University of Amsterdam, and CEPR)

  • Stanislav Gelfer

    (Russian-European Center for Economic Policy)


We study whether Russian Financial-Industrial Groups facilitate access by Russianfirms to investment finance. We compare firms which are members of official FinancialIndustrial Groups and/or are owned by a large Russian bank with a control set of large firmscategorized by dispersed ownership or/and management and employee control. We find thatinvestment is sensitive to internal liquidity for the second set of firms but not for the first. Thisis consistent with extensive reallocation of resources within the groups to overcome capitalconstraints.One interpretation is that group firms have an internal capital market which facilitateaccess to finance. We test this view against the alternative possibility that financial reallocationhide opportunistic value transfer across firms. Specifically, we assess the quality of theinvestment process in group and non group firms by regressing individual firms’ absolute andrelative investment on our measure of Tobin’s Q. The result supports the notion that groupfirm allocate capital better than independent firms.We then distinguish between bank-led groups, which are more hierarchical, andindustry-centered groups which may be more defensive arrangements. While investment is notsignificantly correlated with cash flow in industry-led group firms (unlike in independent firms),there is a negative significant correlation for bank-led firms, suggesting a more extensivefinancial reallocation and the use of profitable firms as cash-cows. Most intriguingly, thegreater sensitivity of group firms’ investment to Q is entirely to be attributed to firms in bankledgroups, where the controlling bank may have a stronger profit motive and authority toreallocate resources.Finally, independent firms with significant stock market trading appear also lessliquidity constraints, suggesting that the Russian equity market may already provide a positiveinformational function.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 98-053/2.

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Date of creation: 20 May 1998
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Handle: RePEc:dgr:uvatin:19980053

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Cited by:
  1. Ksenia Yudaeva & Kozlov Konstantin & Natalia Melentieva & Natalia Ponomareva, 2000. "Does Foreign Ownership Matter? Russian Experience," Working Papers w0005, Center for Economic and Financial Research (CEFIR).
  2. Buch, Claudia M. & Heinrich, Ralph P. & Spinanger, Dean & Engerer, Hella & Lodahl, Maria & Schrettl, Wolfram & Schrooten, Mechthild & Gabrisch, Hubert & Sigmund, Peter, 1998. "Die wirtschaftliche Lage Rußlands: Krise offenbart Fehler der Wirtschaftspolitik. Dreizehnter Bericht," Kiel Discussion Papers 330/331, Kiel Institute for the World Economy (IfW).
  3. Recanatini, Francesca & Ryterman, Randi, 2001. "Disorganization or self-organization : the emergence of business associations in a transition economy," Policy Research Working Paper Series 2539, The World Bank.
  4. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 9903, Centre for Economic Reform and Transformation, Heriot Watt University.
  5. Claessens, Stijn & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1999. "Corporate diversification in East Asia : the role of ultimate ownership and group affiliation," Policy Research Working Paper Series 2089, The World Bank.
  6. Harry Broadman, 2000. "Reducing Structural Dominance and Entry Barriers in Russian Industry," Review of Industrial Organization, Springer, Springer, vol. 17(2), pages 155-175, September.


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