Innovation in business groups

Sharon Belenzon and Tomer Berkovitz

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using novel data on European firms, this paper examines the effect of business group affiliation on innovation. We find that business groups foster the scale and novelty of corporate innovation. Group affiliation is particularly important in industries that rely more on external finance and have a higher degree of information asymmetry. We also find that the innovation of affiliates is less sensitive to operating cash flows. We interpret our results as supporting the ‘bright side’ of business group internal capital markets and explain how legal boundaries between group affiliates mitigate the inefficiencies found in internal capital markets of US conglomerates.

Keywords: business groups; innovation; internal capital markets (search for similar items in EconPapers)
JEL-codes: G34 L22 O32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2007-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:19661

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