Financial Constraints and Continental Business Groups: Evidence from German Konzerns

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Financial Constraints and Continental Business Groups: Evidence from German Konzerns

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Dorothea Schäfer
Yuriy Gorodnichenko
Oleksandr Talavera

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Abstract

Using a unique, large panel of German firms, we examine whether participation in business groups reduces the sensitivity of investment to cash flow. The main finding is that the reduction in the sensitivity is small for small firms and negligible for medium and large firms. We argue that by virtue of the continental business model, gains from business groups should be in better contract enforcement and coordination rather than in internalizing capital markets.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 590.

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Length: 16 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp590

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Article
- Gorodnichenko, Yuriy & Schaefer, Dorothea & Talavera, Oleksandr, 2009. "Financial constraints and continental business groups: Evidence from German Konzerns," Research in International Business and Finance, Elsevier, vol. 23(3), pages 233-242, September. [Downloadable!] (restricted)

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-08-19 (All new papers)
NEP-EEC-2006-08-19 (European Economics)
NEP-EFF-2006-08-19 (Efficiency & Productivity)
NEP-FIN-2006-08-19 (Finance)
NEP-FMK-2006-08-19 (Financial Markets)

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.:

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:
- Jeremy C. Stein, 1995. "Internal Capital Markets and the Competition for Corporate Resources," NBER Working Papers 5101, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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)
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)
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)
Other versions:
- 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. [Downloadable!] (restricted)
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)
Other versions:
- Bernard Yeung & Randall Morck & Daniel Wolfenzon, 2004. "Corporate Governance, Economic Entrenchment and Growth," Working Papers 04-21, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
- 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. [Downloadable!] (restricted)
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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