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Investment in Relationship-Specific Assets: Does Finance Matter?

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  • Strieborny , Martin

    ()

  • Kukenova, Madina

    ()

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.

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Bibliographic Info

Paper provided by Knut Wicksell Centre for Financial Studies, Lund University in its series Knut Wicksell Working Paper Series with number 2013/10.

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Length: 36 pages
Date of creation: 19 Jun 2013
Date of revision:
Handle: RePEc:hhs:luwick:2013_010

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Postal: Knut Wicksell Centre for Financial Studies, Lund University School of Economics and Management, P.O. Box 7080, S-220 07 Lund, Sweden
Phone: +46 46-222 32 61
Fax: +46 46-222 34 06
Web page: http://www.lusem.lu.se/kwc
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Keywords: Financial development; relationship-specific investment; growth;

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Cited by:
  1. Heyman, Fredrik & Gustavsson Tingvall, Patrik, 2012. "The Dynamics of Offshoring and Institutions," Ratio Working Papers, The Ratio Institute 190, The Ratio Institute.
  2. Strieborny, Martin, 2013. "Suppliers, Investors, and Equity Market Liberalizations," Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University 2013/13, Knut Wicksell Centre for Financial Studies, Lund University.
  3. Patrik Tingvall & Andreas Poldahl, 2012. "Determinants of Firm R&D: The Role of Relationship-Specific Interactions for R&D Spillovers," Journal of Industry, Competition and Trade, Springer, Springer, vol. 12(4), pages 395-411, December.
  4. Westerberg, Hans Seerar, 2014. "The Return to R&D and Seller-buyer Interactions: A Quantile Regression Approach," Ratio Working Papers, The Ratio Institute 231, The Ratio Institute.

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