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Business Group Spillovers

Author

Listed:
  • 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.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Suggested Citation

  • S Lakshmi Naaraayanan & Daniel Wolfenzon, 2024. "Business Group Spillovers," The Review of Financial Studies, Society for Financial Studies, vol. 37(1), pages 231-264.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:1:p:231-264.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad057
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    More about this item

    Keywords

    G31; G32; G34;
    All these keywords.

    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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