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Innovation in Business Groups

  • Sharon Belenzon
  • Tomer Berkovitz

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

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File URL: http://cep.lse.ac.uk/pubs/download/dp0833.pdf
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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
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  16. repec:fth:harver:1473 is not listed on IDEAS
  17. Sendhil Mullainathan & David Scharfstein, 2001. "Do Firm Boundaries Matter?," American Economic Review, American Economic Association, vol. 91(2), pages 195-199, May.
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