Innovation in Business Groups

• Published in: Management science Vol. 56; no. 3; pp. 519 - 535
• Main Authors: Belenzon, Sharon, Berkovitz, Tomer
• Format: Journal Article
• Language: English
• Published: Hanover, MD INFORMS 01.03.2010; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: 1979-2004; Affiliates; Applied sciences; Business enterprises; business groups; Business innovation; Business networks; Business partnership; Business structures; Business studies; Capital markets; Cash flow; Corporate finance; Correlation analysis; Diversification; Economic aspects; Epics; Europa; Exact sciences and technology; Financing methods; Funding; Groups; Hypotheses; Innovation; Innovation diffusion; Innovations; Intellectual property; internal capital markets; Knowledge; Knowledge management; Knowledge sharing; knowledge spillovers; Management science; Operational research and scientific management; Operational research. Management science; Organizational change; Portfolio theory; R&D; Research & development; Schätzung; Standard error; Studies; Technological innovation; Unternehmenskooperation; Europe; Patents; Innovation; Internal market; Market capitalization; internal capital markets; Intellectual property; business groups; knowledge spillovers; Capital; Patent rights
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.1090.1107

Using novel data on European firms, this paper investigates the relationship between business groups and innovation. Controlling for various firm characteristics, we find that group affiliates are more innovative than standalones. We examine several hypotheses to explain this finding, focusing on group internal capital markets and knowledge spillovers. We find that group affiliation is particularly important for innovation in industries that rely more on external funding and in groups with more diversified capital sources, consistent with the internal capital markets hypothesis. Our results suggest that knowledge spillovers are not the main driver of innovation in business groups because firms affiliated with the same group do not have a common research focus and are unlikely to cite each other's patents.