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Investment in Relationship-Specific Assets: Does Finance Matter?

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Author

  • Martin Strieborny
  • Madina Kukenova

Summary, in English

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 28 industries in 90 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.

Publishing year

2016

Language

English

Pages

1487-1515

Publication/Series

Review of Finance

Volume

20

Issue

4

Document type

Journal article

Publisher

Oxford University Press

Topic

  • Economics

Keywords

  • banks and real economy
  • relationship-specific investment
  • economic growth
  • G21
  • G10
  • O16
  • O40

Status

Published

ISBN/ISSN/Other

  • ISSN: 1572-3097