Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155047
Authors: 
Spagnolo, Giancarlo
Year of Publication: 
1999
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 94.1999
Abstract: 
The paper proposes a theory of the anti-competitive effects of debt finance based on the interaction between capital structure, managerial incentives, and firms' ability to sustain collusive agreements. It shows that shareholders' commitments that reduce conflicts with debtholders such as hiring managers with valuable reputations or "conservative" incentives besides reducing the agency costs of debt finance also greatly facilitate tacit collusion in product markets. Concentrated or collusive credit markets, or large banking groups, can ensure the credibility of such commitments (renegotiation-proofness), thereby "exporting" collusion through leverage in otherwise competitive downstream product markets.
Subjects: 
Banks
oligopoly
financial market ­ product market interaction
capital structure
managerial incentives
collusion
governance
JEL: 
D21
G32
L13
L41
Document Type: 
Working Paper

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