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Business groups, financing constraints and investment: the case of India

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  • Robert Lensink
  • Remco van der Molen
  • Shubashis Gangopadhyay

Abstract

We examine the effect of business group affiliation on corporate investment behaviour in India. More specifically, we test whether group affiliation reduces financing constraints for the affiliated firms. We use a data set containing 694 listed Indian companies for the 1989-97 period. We estimate a simple investment equation and find evidence that the investment-cash flow sensitivity is much lower for group affiliates. This suggests that business group affiliates have better access to external funds than stand-alone firms.

Suggested Citation

  • Robert Lensink & Remco van der Molen & Shubashis Gangopadhyay, 2003. "Business groups, financing constraints and investment: the case of India," Journal of Development Studies, Taylor & Francis Journals, vol. 40(2), pages 93-119.
    • Handle: RePEc:taf:jdevst:v:40:y:2003:i:2:p:93-119
    DOI: 10.1080/00220380412331293787
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