The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India

Sumit Majumdar and Kunal Sen

Public Choice, 2007, vol. 130, issue 1, 209-223

Abstract: Business groups play an important role in emerging economies. The transactions cost perspective, which has dominated our understanding of such groups, argues that the emergence of business groups is a natural response to market failures in developing countries. In this paper, we propose an alternate theoretical perspective – the rent-seeking view – that takes these groups as engaging in coordinated lobbying for the capture of rents created by governments. We develop and implement an empirical strategy to test for the rent-seeking view drawing from the property rights theory of corporate finance. We find strong empirical support for the rent-seeking view using a large cross-sectional data-set of firms in India. Copyright Springer Science + Business Media B.V. 2007

Keywords: Business groups; Rent-seeking; Transactions cost; Indian industry (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11127-006-9080-6

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