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Investment Financing in Russian Financial-Industrial Groups


  • Enrico C. Perotti
  • Stanislav Gelfer


We study whether Russian Financial-Industrial Groups facilitate access by Russian firms to investment finance. We compare firms which are members of official Financial Industrial Groups and/or are owned by a large Russian bank with a control set of large firms categorized by dispersed ownership or/and management and employee control. We find that investment is sensitive to internal finance for the second set of firms but not for the first. This is consistent with extensive reallocation of resources within the groups to overcome capital constraints. One interpretation is that group firms have an internal capital market which facilitate access to finance. We test this view against the alternative ossibility that financial reallocation hide opportunistic value transfer across firms. Specifically, we assess the quality of the investment process in group and non group firms by regressing individual firms' absolute and relative investment on our measure of Tobin's Q. The result supports the notion that group firm allocate capital better than independent firms. We then distinguish between bank-led groups, which are more hierarchical, and industry-centered groups which may be more defensive arrangements. While investment is not significantly correlated with cash flow in industry-led group firms (unlike in independent firms), there is a negative significant correlation for bank-led firms, suggesting a more extensive financial reallocation and the use of profitable firms as cash-cows. Most intriguingly, the greater sensitivity of group firms' investment to Q is entirely attributed to firms in bank-led groups, where the controlling bank may have a stronger profit motive and authority to reallocate resources.

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  • Enrico C. Perotti & Stanislav Gelfer, 1998. "Investment Financing in Russian Financial-Industrial Groups," William Davidson Institute Working Papers Series 242, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1998-242

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    Cited by:

    1. Buch, Claudia M. & Heinrich, Ralph P. & Spinanger, Dean & Engerer, Hella & Lodahl, Maria & Schrettl, Wolfram & Schrooten, Mechthild & Gabrisch, Hubert & Sigmund, Peter, 1998. "Die wirtschaftliche Lage Rußlands: Krise offenbart Fehler der Wirtschaftspolitik. Dreizehnter Bericht," Kiel Discussion Papers 330/331, Kiel Institute for the World Economy (IfW).
    2. Claessens, Stijn & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1999. "Corporate diversification in East Asia : the role of ultimate ownership and group affiliation," Policy Research Working Paper Series 2089, The World Bank.
    3. Recanatini, Francesca & Ryterman, Randi, 2001. "Disorganization or self-organization : the emergence of business associations in a transition economy," Policy Research Working Paper Series 2539, The World Bank.
    4. Estrin, Saul & Wright, Mike, 1999. "Corporate Governance in the Former Soviet Union: An Overview," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 398-421, September.
    5. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers 9903, Centre for Economic Reform and Transformation, Heriot Watt University.
    6. Ksenia Yudaeva & Kozlov Konstantin & Natalia Melentieva & Natalia Ponomareva, 2000. "Does Foreign Ownership Matter? Russian Experience," Working Papers w0005, Center for Economic and Financial Research (CEFIR).
    7. Harry Broadman, 2000. "Reducing Structural Dominance and Entry Barriers in Russian Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(2), pages 155-175, September.
    8. Zou, Liang & Sun, Laixiang, 2000. "Liability Sharing as a Mechanism to Improve Firms' Investment and Liquidation Decisions," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 739-761, December.

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    corporate groups; financial constraints; investment; Russia; corporate governance; financial transition;

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