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Business Group Spillovers

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  • S. Lakshmi Naaraayanan
  • Daniel Wolfenzon

Abstract

We compare the investment of standalone firms across regions after a positive shock to the investment opportunities generated by a large-scale highway development project. We show that the standalones’ investment sensitivity is lower in regions with a higher density of business groups in the local area. We investigate mechanisms driving our results and find support for a financing mechanism whereby banks allocate capital preferentially to group-affiliated firms in responding to the increase in credit demand. Overall, our study documents that business groups have spillover effects on standalone firms.

Suggested Citation

  • S. Lakshmi Naaraayanan & Daniel Wolfenzon, 2023. "Business Group Spillovers," NBER Working Papers 31107, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31107
    Note: CF
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    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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