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Investment in Relationship-Specific Assets: Does Finance Matter?

  • Strieborny, Martin

    ()

    (Department of Economics, Lund University)

  • Kukenova, Madina

    ()

    (International Trade Centre - Geneva)

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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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2013:11.

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Length: 37 pages
Date of creation: 24 Apr 2013
Date of revision:
Handle: RePEc:hhs:lunewp:2013_011
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Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden

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