Investment and Financing in Russian Financial-Industrial Groups

We study whether Russian Financial-Industrial Groups help the Russian industrial sector to obtain investment finance. We examine the set of firms which are members of official Financial Industrial Groups and/or are owned by one of the large Russian banks, and compare them with a set of other large firms categorized by dispersed ownership or/and management and employee control. We find that investment is sensitive to internal liquidity for the second set of firms but not for the first. This is consistent with extensive reallocation of resources within the groups. One possibility is that group firms have easier access to finance than independent firms, suggesting that financial groups may alleviate agency problem and result in better corporate control over the investment process. Interestingly, large independent firms with a significant stock market valuation and trading appear also less liquidity constraints, suggesting that the Russian equity market may start to provide a positive function. The possibility for opportunistic value transfer across firms is harder to assess. In future research we plan to distinguish between bank-led groups, which appear more hierarchical, and industry-centered groups which may be more defensive.