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Industrial Groups and Investment Efficiency

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  • Mark D. Walker

    (North Carolina State University)

Abstract

Using a sample of 8,790 firm-years between 1993 and 1998, I examine investment policies of firms in Japanese industrial groups relative to independent firms. Unlike independent firms, there is little evidence that group firms' investment is sensitive to ex ante proxies of growth opportunities, and for the most tightly linked firms in the industrial group, there is a negative relation between industry Q and industry-adjusted investment. The difference in the investment pattern for group firms relative to independent firms is directly related to lower excess values for group firms. These findings are consistent with industrial groups decreasing investment efficiency.

Suggested Citation

  • Mark D. Walker, 2005. "Industrial Groups and Investment Efficiency," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1973-2002, September.
    • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1973-2002
    DOI: 10.1086/431449
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    Cited by:

    1. Wen, Riguang & Wang, Siyi & Ouyang, Yingting, 2024. "Does the pricing of intra-group investment deviate from the market rule? Evidence from domestic merger and acquisition transactions under common control in China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    2. Choi, Jongmoo Jay & Hiraki, Takato & Landi, James A., 2014. "The value of multinationality and business group for Japanese firms," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 88-110.
    3. Randall Morck & Masao Nakamura, 2018. "Japan's Ultimately Unaccursed Natural Resources-financed Industrialization," NBER Chapters, in: Corporate Governance (NBER-TCER-CEPR Conference), National Bureau of Economic Research, Inc.
    4. Choi, Yoon K. & Han, Seung Hun, 2013. "Corporate restructuring, financial deregulation, and firm value: Evidence from Japanese “spin-ins”," Pacific-Basin Finance Journal, Elsevier, vol. 22(C), pages 1-13.
    5. Choi, Young Rok & Yoshikawa, Toru & Zahra, Shaker A. & Han, Bong H., 2014. "Market-oriented institutional change and R&D investments: Do business groups enhance advantage?," Journal of World Business, Elsevier, vol. 49(4), pages 466-475.
    6. Aggarwal, Raj & Dow, Sandra M., 2012. "Dividends and strength of Japanese business group affiliation," Journal of Economics and Business, Elsevier, vol. 64(3), pages 214-230.
    7. Kong, Dongmin & Liu, Shasha & Xiang, Junyi, 2018. "Political promotion and labor investment efficiency," China Economic Review, Elsevier, vol. 50(C), pages 273-293.

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