Investment in Relationship-Specific Assets: Does Finance Matter?

M. Strieborny, M. Kukenova

    Research output: Working paperDiscussion paperOther research output

    291 Downloads (Pure)

    Abstract

    An influential strand of literature starting with the Nobel Prize winning work of Oliver Williamson (1971, 1975) argues that a rational agent underinvests in relationship-specific assets due to the possibility of an opportunistic behaviour on the part of her contractual partner. We first combine the insights from this literature with the theoretical work on financial intermediaries and argue that a strong banking sector can alleviate this well-known holdup problem and stimulate relationship-specific investment. Then we empirically confirm this prediction by showing that industries dependent on relationship-specific investment from their suppliers grow disproportionately faster in countries with a high level of financial development and in US states which deregulated their banking sector. Our work establishes a novel channel through which finance a¤ects the real economy. It also complements the literature that has stressed legally binding contracts as a standard solution to the holdup problem.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherVakgroep CentER
    Number of pages47
    Volume2010-38S
    Publication statusPublished - 2010

    Publication series

    NameCentER Discussion Paper
    Volume2010-38S

    Keywords

    • financial development
    • relationship-specific investment
    • growth

    Fingerprint Dive into the research topics of 'Investment in Relationship-Specific Assets: Does Finance Matter?'. Together they form a unique fingerprint.

  • Cite this

    Strieborny, M., & Kukenova, M. (2010). Investment in Relationship-Specific Assets: Does Finance Matter? (CentER Discussion Paper; Vol. 2010-38S). Vakgroep CentER.