Determinants of Vertical Integration: Finance, Contracts, and Regulation

Daron Acemoglu, Simon Johnson and Todd Mitton

No 11424, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the determinants of vertical integration in a new dataset of over 750,000 firms from 93 countries. Existing evidence suggests the presence of large cross-country differences in the organization of firms, which may be related to differences in financial development, contracting costs or regulation. We find cross-country correlations between vertical integration on the one hand and financial development, contracting costs, and entry barriers on the other that are consistent with these "priors". Nevertheless, we also show that these correlations are almost entirely driven by industrial composition; countries with more limited financial development, higher contracting costs or greater entry barriers are concentrated in industries with a high propensity for vertical integration. Once we control for differences in industrial composition, none of these factors are correlated with average vertical integration. However, we also find a relatively robust differential effect of financial development across industries; countries with less-developed financial markets are significantly more integrated in industries that are more human capital or technology intensive.

JEL-codes: G30 G34 L22 L23 (search for similar items in EconPapers)
Date: 2005-06
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
Note: CF IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published as Daron Acemoglu & Simon Johnson & Todd Mitton, 2009. "Determinants of Vertical Integration: Financial Development and Contracting Costs," Journal of Finance, American Finance Association, vol. 64(3), pages 1251-1290, 06.

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