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Determinants of Vertical Integration: Financial Development and Contracting Costs
Author(s) -
ACEMOGLU DARON,
JOHNSON SIMON,
MITTON TODD
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01464.x
Subject(s) - vertical integration , financial integration , business , horizontal and vertical , capital cost , capital (architecture) , finance , economics , industrial organization , financial market , macroeconomics , history , archaeology , geodesy , geography
We study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the interactions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial development by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contracting costs are more vertically integrated in more capital‐intensive industries.