Working Paper: NBER ID: w31107
Authors: 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.
Keywords: No keywords provided
JEL Codes: G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Business Group Prevalence (L20) | Investment Sensitivity of Standalone Firms (G31) |
| Investment Sensitivity of Standalone Firms (G31) | Average Investment by Standalone Firms (G24) |
| Business Group Prevalence (L20) | Capital Supply to Standalone Firms (G32) |
| Banks' Lending Relationships to Business Groups (G21) | Capital Supply to Standalone Firms (G32) |
| Business Group Prevalence (L20) | Competition for Factors of Production (L11) |
| Business Group Prevalence (L20) | Ability to Seize Investment Opportunities (G31) |