This study estimates an accelerator model of fixed investment using a Russian industrial enterprise data set. The data set contains individual firms’ accounting data for 1996 and 1997. The sample of firms was divided into two subsamples, based on ownership structure. It compares sensitivities of investment to changes in net worth for unregistered financial-industrial groups and independent firms. Based on the empirical results, it concludes that the model works well when applied to Russian firms’ investment behavior in 1996–97. Russia’s financial system provided external finance primarily to the largest enterprises; most firms received no outside financing.

Given the same investment opportunities and size class, medium and large firms from unregistered Russian financial-industrial groups invested a larger proportion of their retained earnings than did independent firms. This result is consistent with the hypothesis that banks in such groups—which are able to monitor financial flows of firms in the groups more easily than they can monitor independent firms—exercise systematic control over managerial actions. This efficiently reduces managerial discretion over retained earnings, which results in the implementation of a larger number of investment projects among these firms than among independent firms of the same size and with the same investment opportunities.