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Contracting institutions and vertical integration: Evidence from China’s manufacturing firms

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  • Du, Julan
  • Lu, Yi
  • Tao, Zhigang

Abstract

The existing studies on vertical integration focus on factors at the transaction parties’ level, such as asset specificity and contractual incompleteness. What is overlooked is the quality of the underlying institutions, in particular, contracting institutions. In this paper, using a World Bank data set of manufacturing firms in China, we find that poorer contracting institutions cause firms to be more vertically integrated. Our results are robust to various checks, especially the inclusion of the quality of financial institutions.

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  • Du, Julan & Lu, Yi & Tao, Zhigang, 2012. "Contracting institutions and vertical integration: Evidence from China’s manufacturing firms," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 89-107.
    • Handle: RePEc:eee:jcecon:v:40:y:2012:i:1:p:89-107
    DOI: 10.1016/j.jce.2011.10.002
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    More about this item

    Keywords

    Contracting institutions; Vertical integration; Legal origins;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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