Does business group affiliation matter for external debt finance? Evidence from India

We investigate in the Indian context how developing-economy business groups make capital structure choices during economic reforms. Using eighteen years of panel data, we find a general trend towards deleveraging, reduced access to deficit financing, and higher costs of debt financing for group-affiliated firms. We further find that the first two of these trends are more pronounced for firms affiliated with large business groups. Our findings contribute to resource-dependence theory by demonstrating that the size of business groups is positively related to their ability to better manage environmental interdependence and uncertainty during economic reforms.