Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/260069
Year of Publication: 
2013
Series/Report no.: 
Working Paper No. 2013:11
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
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.
Subjects: 
…nancial development
relationship-speci…c investment
growth
JEL: 
G21
O16
O40
Document Type: 
Working Paper

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