Review of Finance Vol. 20 No. 4 2016
Investment in Relationship-Specific Assets: Does Finance Matter?
Abstract
Banks (but not stock markets) promote economic growth by facilitating relationship-specific investment between buyers and suppliers of intermediate goods. Combined insights from literature on signaling role of banks and on relationship-specific investment motivate this economic channel: A supplier is reluctant to undertake relationship-specific investment as she cannot observe financial stability and planning horizon of buyer. Banks can mitigate this information asymmetry. Empirical results from twenty-eight industries in ninety countries confirm that industries dependent on relationship-specific investment from their suppliers grow disproportionately faster in countries with a well-developed banking sector. The channel works via increased entry of new firms and higher capital accumulation.
- DOI
- 10.1093/rof/rfv049
- Volume
- 20
- Issue
- 4
- Pages
- 1487-1515
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref