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Investment in Relationship-Specific Assets: Does Finance Matter?

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  • Kukenova, Madina
  • Strieborny, Martin

Abstract

We show that contract-intensive industries particularly thrive both in countries with high initial level of financial development and in the US states that deregulated their banking sector. These industries use high share of relationship-specific inputs that can be purchased only via specific contracts with the suppliers. Accordingly, both firms in those industries and their suppliers face above-average levels of risk and transaction costs. Our empirical results thus confirm the theoretical claim that finance promotes real economy via managing risk and decreasing transaction costs. Furthermore, the pro-growth e¤ect of finance seems to come from financial intermediaries like banks rather than from stock markets. This suggests that the intrinsic functions of relationship-banking (long-term commitment, increase in reputation and planning horizon of the borrowers) are especially important for the contract-intensive industries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15229.

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Date of creation: Apr 2009
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Handle: RePEc:pra:mprapa:15229

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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 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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