Business Group Affiliation and Corporate Investment: Evidence from Indian Companies

This study examines the role of business group affiliation in the determination of corporate fixed investment, in Indian manufacturing firms, during the period 1998–99 to 2013–14. We find that business group affiliated firms are different from stand-alone firms in terms of size, leverage and cash flow, and group affiliation affects the corporate investment positively. This study finds that investment behavior of group affiliated firms are less sensitive to firm specific factors like cash flow, profit, firm size, and tangibility. Irrespective of the types of companies, the variables like sales, leverage, and firms’ age play a significant role in determining the corporate investments. This study also finds that adjustment speed to target investment is higher in group affiliated firms than in stand-alone firms. The findings of this study have implications for corporate managers to devise proper investment policies to enhance the corporate investment and performance.