Working Papers, Department of Economics, Lund University
Investment in Relationship-Specific Assets: Does Finance Matter?
() and Madina Kukenova
Abstract: Existing literature highlights opportunistic behavior as
the main reason why rational agents underinvest in relationship-specific
assets (the hold-up problem). However, a supplier would also be reluctant
to undertake relationship-specific investment if she cannot observe
financial stability or planning horizon of a buyer. By combining insights
from research on relationship-specific investment and signaling role of
financial intermediaries, we argue that a strong banking sector can
alleviate these information asymmetries between buyers and suppliers. We
empirically confirm this hypothesis by showing that industries dependent on
relationship-specific investment from their suppliers grow
disproportionately faster in countries with a strong banking sector.
Keywords: …nancial development; relationship-speci…c investment; growth; (follow links to similar papers)
JEL-Codes: G21; O16; O40; (follow links to similar papers)
37 pages, April 24, 2013
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