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The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India

  • Sumit Majumdar
  • Kunal Sen

    ()

Business groups play an important role in emerging economies. The transactions cost perspective, which has dominated our understanding of such groups, argues that the emergence of business groups is a natural response to market failures in developing countries. In this paper, we propose an alternate theoretical perspective – the rent-seeking view – that takes these groups as engaging in coordinated lobbying for the capture of rents created by governments. We develop and implement an empirical strategy to test for the rent-seeking view drawing from the property rights theory of corporate finance. We find strong empirical support for the rent-seeking view using a large cross-sectional data-set of firms in India. Copyright Springer Science + Business Media B.V. 2007

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File URL: http://hdl.handle.net/10.1007/s11127-006-9080-6
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Article provided by Springer in its journal Public Choice.

Volume (Year): 130 (2007)
Issue (Month): 1 (January)
Pages: 209-223

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Handle: RePEc:kap:pubcho:v:130:y:2007:i:1:p:209-223
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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  8. Gangopadhyay, Shubashis & Lensink, Robert & Molen, Remco van der, 2002. "Business groups, financing constraints, and investment : the case of India," Research Report 02E02, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  9. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
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