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

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

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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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 40 (2012)
Issue (Month): 1 ()
Pages: 89-107

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Handle: RePEc:eee:jcecon:v:40:y:2012:i:1:p:89-107
DOI: 10.1016/j.jce.2011.10.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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