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Financial Constraints and Continental Business Groups: Evidence from German Konzerns

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  • Dorothea Schäfer
  • Yuriy Gorodnichenko
  • Oleksandr Talavera

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.

Suggested Citation

  • Dorothea Schäfer & Yuriy Gorodnichenko & Oleksandr Talavera, 2006. "Financial Constraints and Continental Business Groups: Evidence from German Konzerns," Discussion Papers of DIW Berlin 590, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp590
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    Cited by:

    1. Anaïs HAMELIN & Vivien LEFEBVRE & Laurent WEILL, 2020. "In Business Groups We Trust," Working Papers of LaRGE Research Center 2020-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    2. Günay, Hüseyin & Kılınç, Mustafa, 2015. "Credit market imperfections and business cycle asymmetries in Turkey," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 79-98.
    3. Raffaele Santioni & Ilaria Supino, 2018. "Internal capital markets in Italian business groups: evidence from the financial crisis," Questioni di Economia e Finanza (Occasional Papers) 421, Bank of Italy, Economic Research and International Relations Area.
    4. Anaïs Hamelin-Schertzer, 2010. "Is there tunneling in Small Business Groups? Evidence from French SMEs," Working Papers CEB 10-003.RS, ULB -- Universite Libre de Bruxelles.
    5. Anaïs HAMELIN, 2013. "Does Size Matter? Firm And Business Group Size Influence On The Benefits Of Group Affiliation," Working Papers of LaRGE Research Center 2013-10, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

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    More about this item

    Keywords

    concern; business group; investment; liquidity constraints.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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