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Title:Investment in relationship-specific assets: Does finance matter? PDF Logo
Authors:Strieborny, Martin
Kukenova, Madina
Issue Date:2011
Series/Report no.:CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3349
Abstract:Existing literature sees opportunistic behaviour of contractual partners as the main reason why rational agents underinvest in relationship-specific assets. We look beyond this well-know holdup problem and argue that financial vulnerability and short-term planning horizon can also lead to such underinvestment. Subsequently, banks can stimulate growth-enhancing investment in relationship-specific assets by signalling creditworthiness and long-term planning horizon of their borrowers. 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.
Subjects:financial development
relationship-specific investment
growth
JEL:G21
O16
O40
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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