Innovation in Business Groups

Using novel data on European …rms, this paper examines the e¤ect of business group a¢ liation on innovation. We …nd that business groups foster the scale and novelty of corporate innovation. Group a¢ liation is particularly important in industries that rely more on external …nance and have a higher degree of information asymmetry. We also …nd that the innovation of a¢ liates is less sensitive to operating cash ‡ows. We interpret our results as supporting the ‘bright side’ of business group internal capital markets and explain how legal boundaries between group a¢ liates mitigate the ine¢ ciencies found in internal capital markets of US conglomerates.

• Type: Journal
• Year: 2010
• Where: MANSCI
• Authors: Sharon Belenzon, Tomer Berkovitz
• Keywords: Business Group, Group A¢, Group A¢ Liation, MANSCI 2010