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Vertical integration and supplier finance

Author

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  • Holger Görg
  • Erasmus Kersting

Abstract

This paper studies access to finance by suppliers that are linked to a multinational enterprise. The theoretical framework consists of a property rights model featuring suppliers that are either vertically integrated or sell to the multinational at arm's length, which in turn affects the availability of different sources of credit. Integrated suppliers are predicted to cover a relatively larger share of their costs using internal sources, consisting of initial wealth plus funds from the multinational parent. In addition, due to the diminished dependence on external funds (local bank credit), integrated suppliers' funding shares are less responsive to changes in their home country's level of financial development. We test the model's predictions using firm survey data from over 50 developing and emerging countries and find broad support.

Suggested Citation

  • Holger Görg & Erasmus Kersting, 2017. "Vertical integration and supplier finance," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 273-305, February.
    • Handle: RePEc:cje:issued:v:50:y:2017:i:1:p:273-305
    DOI: 10.1111/caje.12257
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    Cited by:

    1. Moran, Theodore H. & Görg, Holger & Seric, Adnan & Krieger-Boden, Christiane, 2017. "How to Attract Quality FDI?," KCG Policy Papers 2, Kiel Centre for Globalization (KCG).

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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