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The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India

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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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Authors and Affiliations

  1. School of Management, University of Texas at Dallas, Richardson, TX, 75083, USA

    Sumit K. Majumdar

  2. School of Environment and Development, University of Manchester, Manchester, UK

    Kunal Sen

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  1. Sumit K. Majumdar
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  2. Kunal Sen
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Correspondence to Kunal Sen.

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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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