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Investment in Relationship-Specific Assets: Does Finance Matter?

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  • Martin Strieborny
  • Madina Kukenova

Abstract

Existing literature sees opportunistic behaviour of contractual partners as the main reason why rational agents underinvest in relationship-specific assets. We look beyond this well-know holdup problem and argue that financial vulnerability and short-term planning horizon can also lead to such underinvestment. Subsequently, banks can stimulate growth-enhancing investment in relationship-specific assets by signalling creditworthiness and long-term planning horizon of their borrowers. 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

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3349.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3349

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Keywords: financial development; relationship-specific investment; growth;

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Cited by:
  1. Tingvall, Patrik Gustavsson & Poldahl, Andreas, 2011. "Determinants of Firm R&D: The Role of Relationship-specific Interactions for R&D Spillovers," Working Paper Series in Economics and Institutions of Innovation 251, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  2. Strieborny, Martin, 2013. "Suppliers, Investors, and Equity Market Liberalizations," Knut Wicksell Working Paper Series 2013/13, Knut Wicksell Centre for Financial Studies, Lund University.
  3. Heyman, Fredrik & Gustavsson Tingvall, Patrik, 2012. "The Dynamics of Offshoring and Institutions," Ratio Working Papers 190, The Ratio Institute.

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