Red barons or robber barons? Governance and investment in Russian financial-industrial groups

摘要

We study the governance role of Russian financial-industrial groups (FIG) and their impact on the allocation of capital. We compare member firms of groups with a control set of firms categorized by dispersed ownership or/and management and employeecontrol. We distinguish between hierarchical FIGs, where a bank is in firm control, and industry groups, which are looser alliances without a common control structure. We find that investment is sensitive to internal finance for the non-group firms. Industry group firms are not different from the independent firms in that respect, while there is negative correlation in bank-led group firms, suggesting extensive financial reallocation and the use of profitable firms as cash cows. These results suggest either an internal capital market which redirects finance to firms with better investment opportunities or opportunistic value transfers by the controlling banks. We further assess the quality of the investment process in group and non-group firms by measuring the correlation of investment with a proxy for Tobin's Q. The result supports the notion that hierarchical group firms allocate capital comparatively better than other firms, presumably because the controlling bank has a stronger profit motive and authority. However, the extent of redistribution is such that private appropriation of value by the controlling shareholders is a serious possibility.