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Financial development and vertical integration : theory and evidence
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Macchiavello, Rocco (2011) Financial development and vertical integration : theory and evidence. Journal of the European Economic Association, 10 (2). pp. 255-289. doi:10.1111/j.1542-4774.2011.01042.x ISSN 1542-4766.
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Official URL: http://dx.doi.org/10.1111/j.1542-4774.2011.01042.x
Abstract
Existing evidence is mostly inconclusive on the relevance of financial development as a determinant of vertical integration. This paper presents evidence that, once industry heterogeneity in firm size distribution is taken into account, financial development is an important determinant of cross-country differences in vertical integration. Financial development fosters entry of firms and increases competition in the industry. This reduces vertical integration of larger firms, but also leads smaller, non-integrated, firms to exit the industry. As a result, higher financial development reduces vertical integration in industries where a high share of output is produced by small firms. The positive effect of financial development on entry also reduces vertical integration by fostering the development of input markets.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Journal of the European Economic Association | ||||
Publisher: | Oxford University Press | ||||
ISSN: | 1542-4766 | ||||
Official Date: | 2011 | ||||
Dates: |
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Volume: | 10 | ||||
Number: | 2 | ||||
Number of Pages: | 35 | ||||
Page Range: | pp. 255-289 | ||||
DOI: | 10.1111/j.1542-4774.2011.01042.x | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published |
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