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Investment in Relationship-Specific Assets: Does Finance Matter?

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Abstract

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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  • Strieborny , Martin & Kukenova, Madina, 2013. "Investment in Relationship-Specific Assets: Does Finance Matter?," Knut Wicksell Working Paper Series 2013/10, Lund University, Knut Wicksell Centre for Financial Studies.
    • Handle: RePEc:hhs:luwick:2013_010
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    2. Westerberg, Hans Seerar, 2014. "The Return to R&D and Seller-buyer Interactions: A Quantile Regression Approach," Ratio Working Papers 231, The Ratio Institute.
    3. Martin Strieborny & Madina Kukenova, 2016. "Investment in Relationship-Specific Assets: Does Finance Matter?," Review of Finance, European Finance Association, vol. 20(4), pages 1487-1515.
    4. Strieborny, Martin, 2013. "Suppliers, Investors, and Equity Market Liberalizations," Knut Wicksell Working Paper Series 2013/13, Lund University, Knut Wicksell Centre for Financial Studies.
    5. Çağatay Bircan & Ralph De Haas, 2020. "The Limits of Lending? Banks and Technology Adoption across Russia," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 536-609.
    6. Mélise Jaud & Madina Kukenova & Martin Strieborny, 2009. "Financial dependence and intensive margin of trade," Working Papers halshs-00575005, HAL.
    7. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    8. Heyman Fredrik & Tingvall Patrik Gustavsson, 2015. "The Dynamics of Offshoring and Institutions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1975-2016, October.
    9. Kershen Huang & Chenguang Shang & Chi Zhang, 2021. "Working hard for long‐distance relationships: Geographic proximity and relationship‐specific investments," Financial Management, Financial Management Association International, vol. 50(4), pages 985-1011, December.
    10. Peia, Oana & Roszbach, Kasper, 2015. "Finance and growth: Time series evidence on causality," Journal of Financial Stability, Elsevier, vol. 19(C), pages 105-118.
    11. Halvarsson, Daniel & Lark, Olga & Tingvall, Patrik & Videnord, Josefin, 2022. "Bargaining for Trade: When Exporting Becomes Detrimental for Female Wages," Working Paper Series 1437, Research Institute of Industrial Economics.
    12. Melise Jaud & Madina Kukenova & Martin Strieborny, 2021. "Stock Market Liberalizations and Export Dynamics," Working Papers 2021_15, Business School - Economics, University of Glasgow.
    13. Thomas Hall, 2015. "Firm Boundaries and Innovation: Empirical Evidence from Entrepreneurial Finance," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 12(05), pages 1-33.
    14. Hazwan Haini, 2020. "Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies," Economic Change and Restructuring, Springer, vol. 53(4), pages 519-542, November.
    15. Halvarsson, Daniel & Lark, Olga & Tingvall, Patrik & Videnord, Josefin, 2022. "Bargaining for Trade: When Exporting Becomes Detrimental for Female Wages," Working Papers 2022:13, Lund University, Department of Economics.
    16. Halvarsson, Daniel & Lark, Olga & Tingvall, Patrik & Videnord, Josefin, 2022. "Bargaining for Trade: When Exporting Becomes Detrimental for Female Wages," Ratio Working Papers 361, The Ratio Institute.

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    More about this item

    Keywords

    Financial development; relationship-specific investment; growth;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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