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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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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44440.de/dp590.pdf
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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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  12. Allen N. Berger & Leora F. Klapper & Gegory F. Udell, 2001. "The ability of banks to lend to informationally opaque small businesses," Proceedings 709, Federal Reserve Bank of Chicago.
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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.
  16. Audretsch, David B & Elston, Julie Ann, 1994. "Does Firm Size Matter? Evidence on the Impacts of Liquidity Constraints on Firm Investment Behaviour in Germany," CEPR Discussion Papers 1072, C.E.P.R. Discussion Papers.
  17. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
  18. Jeremy C. Stein, 1995. "Internal Capital Markets and the Competition for Corporate Resources," NBER Working Papers 5101, National Bureau of Economic Research, Inc.
  19. 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.
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