Investment in Relationship-Specific Assets: Does Finance Matter?

Martin Strieborny and Madina Kukenova

Review of Finance, 2016, vol. 20, issue 4, 1487-1515

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.

Date: 2016
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Related works:
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2013)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2013)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2011)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter ? (2011)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2010)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2010)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2010)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2009)
Working Paper: Investment in Relationship-Specific Assets: Does Finance Matter? (2009)
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