The Effect of Hold-up Problems on Corporate Investment: Evidence from Import Tariff Reductions

Thorsten Martin () and Clemens A. Otto ()

No 1208, HEC Research Papers Series from HEC Paris

Abstract: We provide empirical evidence of the importance of hold-up problems for investment decisions in a large number of U.S. manufacturing industries. We exploit variation in the severity of hold-up problems between upstream suppliers and downstream customers resulting from import tariff reductions in upstream industries. We find that downstream customers respond by increasing investment. As theory predicts, the effect is stronger if the customers have little bargaining power and are not vertically integrated with their suppliers, if the suppliers produce differentiated inputs, if high uncertainty inhibits the use of long-term contracts, and if shipping costs are low.

Keywords: Hold-up Problems; Corporate Investment; Supply Chains; Import Tariffs (search for similar items in EconPapers)
JEL-codes: D23 F14 G31 L14 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2016-11-01, Revised 2017-06-27
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1208

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