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.
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Majumdar, S.K., Sen, K. The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India. Public Choice 130, 209–223 (2007). https://doi.org/10.1007/s11127-006-9080-6
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DOI: https://doi.org/10.1007/s11127-006-9080-6