Financial development and vertical integration: theory and evidence

Macchiavello, Rocco (2011) Financial development and vertical integration: theory and evidence. Journal of the European Economic Association, 10 (2). pp. 255-289. ISSN 1542-4766

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Abstract

Existing evidence is mostly inconclusive on the relevance of financial development as a determinant of vertical integration. This paper presents evidence that, once industry heterogeneity in firm size distribution is taken into account, financial development is an important determinant of cross-country differences in vertical integration. Financial development fosters entry of firms and increases competition in the industry. This reduces vertical integration of larger firms, but also leads smaller, non-integrated, firms to exit the industry. As a result, higher financial development reduces vertical integration in industries where a high share of output is produced by small firms. The positive effect of financial development on entry also reduces vertical integration by fostering the development of input markets.

Item Type:	Article
Official URL:	http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information:	© 2011 by the European Economic Association
Divisions:	Management
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
Date Deposited:	03 Nov 2016 14:32
Last Modified:	04 Apr 2024 01:12
URI:	http://eprints.lse.ac.uk/id/eprint/68220

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