Kukenova, Madina and Strieborny, Martin (2009): Investment in Relationship-Specific Assets: Does Finance Matter?
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We show that contract-intensive industries grow disproportionately faster both in countries with a high initial level of financial development and in the US states which deregulated their banking sector. These industries use a high share of relationship-specific inputs that can be purchased only via specific contracts with the suppliers. Accordingly, both firms in those industries and their suppliers face above-average levels of risk and transaction costs. Our empirical results thus confirm the theoretical claim that finance promotes the real economy via managing risk and decreasing transaction costs. Furthermore, the pro-growth effect of finance seems to come from financial intermediaries like banks rather than from stock markets. This suggests that the intrinsic functions of relationship-banking (long-term commitment, increase in reputation and planning horizon of the borrowers) are especially important for the contract-intensive industries.
|Item Type:||MPRA Paper|
|Original Title:||Investment in Relationship-Specific Assets: Does Finance Matter?|
|Keywords:||financial development; relationship-specific investment; growth|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Martin Strieborny|
|Date Deposited:||06. Jul 2009 10:25|
|Last Modified:||14. Feb 2013 00:40|
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