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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. 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, vol. 12(4), pages 395-411, December.
  3. Strieborny, Martin, 2013. "Suppliers, Investors, and Equity Market Liberalizations," Working Papers 2013:12, Lund University, Department of Economics.
  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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