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Determinants of vertical integration: financial development and contracting costs.” The (2009)
| Venue: | Journal of Finance |
| Citations: | 36 - 0 self |
BibTeX
@ARTICLE{Acemoglu09determinantsof,
author = {Daron Acemoglu and Simon Johnson and Todd Mitton},
title = {Determinants of vertical integration: financial development and contracting costs.” The},
journal = {Journal of Finance},
year = {2009},
pages = {1251--1290}
}
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Abstract
We study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the inter-actions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial devel-opment by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contract-ing costs are more vertically integrated in more capital-intensive industries. CASUAL EMPIRICISM SUGGESTS THE PRESENCE OF SIGNIFICANT differences in the orga-nization of production across countries. For example, firms are often thought to be larger and more vertically integrated in less developed countries. Khanna and Palepu (1997, 2000) provide evidence consistent with this view and suggest that this is because market and contractual relationships are more costly in less developed countries. Nevertheless, there has not been a systematic analysis of
