A bird in the hand is better than two in the bush: Investigating the relationship between financial slack and profitability in business groups

Using arguments from the behavioral theory of firm, agency theory, and literature on internal capital markets, this article investigates relationship between financial slack firms’ profitability in standalone versus business group–affiliated firms. a large sample French privately held firms, we show that there is quadratic, inverse U-shape for We observe relation steeper group affiliated firms than which consistent with idea groups are competition resources. Moreover, explore whether characteristics position weight given firm organization influence impact profitability. Our results closest to head have higher groups, U-shaped steeper. These findings suggest bargaining power plays an important role explaining JEL CLASSIFICATION: G32, L22 L25.