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Business Group Spillovers

Journal

Review of Financial Studies

Subject

Finance

Publishing details

Review of Financial Studies 2023 Vol 37:1 p 231-264

Authors / Editors

Naaraayanan L;Wolfenzon D

Biographies

Lakshmi Naaraayanan

Publication Year

2023

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.

Available on ECCH

No


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