Business Group Affiliation and R&amp;D Investment: Evidence from China

Lou, Zhukun; Chen, Siyu; Jia, Yingya

doi:10.1080/1540496x.2019.1642195

Cited by 9 publications

(16 citation statements)

References 38 publications

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“…As noted earlier, business groups are found commonly, both in emerging and developed economies (Lou et al. , 2019).…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 83%

“…As per the institutional void theory, the positive impact of BG affiliation starts reducing with the betterments in the institutional structure of the economy (Lou et al. , 2019; Chittor et al.…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 97%

“…Hence, business group affiliation benefits their associated firms by providing an internal substitute to the external market toward the capital, labor and product (Khanna and Palepu, 2000; Chittoor et al. , 2015; Lou et al. , 2019).…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 99%

“…The evidence regarding the benefits of group affiliation is mixed and inconclusive (Classens et al. , 2006; Lou et al. , 2019).…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 99%

“…Business groups predominantly exist both in emerging and developed economies (Khanna and Yafeh, 2007; Lou et al. , 2019).…”

Section: Introductionmentioning

confidence: 99%

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Does group affiliation impact financial constraints? Evidence from India

Bhatia

Chakrabarti

2022

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PurposeThis study aims to primarily investigate two vital questions: First, the authors examine whether group-affiliated firms are more (less) financially constrained vis-à-vis standalone firms. The authors estimate working capital investment (WCI) to cash flow sensitivity to understand the nature of financial constraints. Second, the authors further investigate the impact of working capital level on firm values and risks between group-affiliated and standalone firms.Design/methodology/approachThis paper uses balanced panel data set from the year 2012–2019. The authors employ propensity score matching to ascertain comparable firm attributes from business group and standalone firms. This process yields 280 firms (140 in each group) after controlling the firm heterogeneity between these two groups. All the models are estimated using fixed-effect regression.FindingsThe authors find that group affiliated firms are less financially constrained than standalone firms. The results show that WCI to cash flow sensitivity is higher in standalone firms vis-a-vis group-affiliated firms, implying that standalone firms are more financially constrained than group-affiliated firms. Second, the authors find that firm values are more sensitive to working capital level in standalone firms versus group-affiliated firms. Furthermore, the authors document that the risk of the standalone firms is less sensitive to working capital level than that of group-affiliated firms.Originality/valueMost recent studies exploring the role of group affiliation in financing constraints have not controlled for heterogeneity among group-affiliated firms vis-à-vis standalone firms, which may arise due to variation in firm characteristics. Unlike prior studies, this research design ascertains comparable firm attributes between business group and standalone firms, implying firms belonging to these two groups differ by the exogeneous affiliation (business group and standalone firms). The authors document that group-affiliated firms are less financially constrained than standalone firms controlling firm-level heterogeneity between group-affiliated and standalone firms. To the best of the authors' knowledge, no such work has been previously done in general (specifically in India).

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“…As noted earlier, business groups are found commonly, both in emerging and developed economies (Lou et al. , 2019).…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 83%

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 97%