Does Financial-Industrial Group Membership Affect Fixed Investment: Evidence from Russia

Abstract

The current research estimates the accelerator type model of fixed investment using a Russian industrial enterprise dataset . This dataset contains individual firms’ accounting data for 1996 and 1997. The sample of firms was divided into three subsamples based on the ownership structure data. Registered Financial-Industrial Groups, unregistered Financial-Industrial Groups and non-group subsets were analyzed in order to compare sensitivities of investment to changes in internal liquidity in these three sets of firms. Controlling for size and investment opportunities it was found that in 1996-1997 the firms in unregistered groups invest a larger proportion of their retained earnings relative to the rest of the economy. We interpret this result as a proof of the hypothesis of better contract enforcement in unofficial groups compared to the rest of economy in the situation of lack of external financing of investment.accelerator model of fixed business investment, financial-industrial groups