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Financial Constraints and Continental Business Groups: Evidence from German Konzerns

  • Dorothea Schäfer
  • Yuriy Gorodnichenko
  • Oleksandr Talavera

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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  9. Marco Becht & Carlos Ramirez, 2003. "Does bank affiliation mitigate liquidity constraints? Evidence from Germany's Universal banks in the pre-World War I period," ULB Institutional Repository 2013/13310, ULB -- Universite Libre de Bruxelles.
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  15. 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.
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  17. Bronwyn Hall & Jacques Mairesse, 1998. "Does Cash Flow cause Investment and R and D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Economics Series Working Papers 1998-W08, University of Oxford, Department of Economics.
  18. Chang, Sea Jin & Choi, Unghwan, 1988. "Strategy, Structure and Performance of Korean Business Groups: A Transactions Cost Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 141-58, December.
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