Contracting institutions and firm boundaries

Peter Eppinger and Bohdan Kukharskyy

No 100, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: Contractual frictions are widely known to shape firm boundaries. But do better contracting institutions, which reduce these frictions, induce firms to be more or less deeply integrated? This paper provides a large-scale investigation of this question using a unique micro dataset of ownership shares across half a million firm pairs worldwide. We uncover strong evidence that better contracting institutions in subsidiaries' countries favor deeper integration, particularly in relationship-specific industries. We formally show that these findings can be explained by a generalized Property-Rights Theory of the firm featuring partial ownership, while they are at odds with the canonical Transaction-Cost Theory.

Keywords: firm boundaries; contracting institutions; multinational firms; property-rights theory; firmlevel analysis (search for similar items in EconPapers)
JEL-codes: D02 D23 F21 F23 L14 L23 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:100

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