Capital structure under collusion |
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| Institution: | 1. Universidad de Montevideo, Uruguay;2. IESE Business School, Spain;3. Bauer College of Business, University of Houston, Houston, TX 77204, USA;4. Universidad de los Andes, Chile;1. ALBA Graduate Business School, The American College of Greece, 6-8 Xenias Str, 11528 Athens, Greece;2. Bank of Greece, 21 E. Venizelos Ave., 10250 Athens, Greece;3. University of Piraeus, Department of Banking and Financial Management, 80 Karaoli & Dimitriou str., 18534 Piraeus, Greece;4. Surrey Business School, University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom;1. Cass Business School, London, United Kingdom;2. CEPR, United Kingdom;3. Bank for International Settlements, Basel, Switzerland;1. Seoul National University, South Korea;2. Research Group, Federal Reserve Bank of New York, USA;3. Department of Economics, Koç University, Istanbul, Turkey;1. D’Amore-McKim School of Business, Northeastern University, USA;2. Olin Business School, Washington University in St. Louis, USA;1. A. B. Freeman School of Business, Tulane University, New Orleans, LA 70118-5645, United States of America;2. School of Banking and Finance, University of International Business and Economics, Beijing 100029, China;3. School of Finance, Southwestern University of Finance and Economics, Chengdu, Sichuan 611130, China |
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| Abstract: | We analyze the financial leverage of firms that collude to soften product market competition by forming a cartel. We find that cartel firms have lower leverage during collusion periods. This is consistent with the idea that cartel firms strategically reduce leverage to make their cartels more stable, because high leverage makes deviations from a cartel agreement more attractive. Given that cartels have a large economic footprint, their study is also relevant for the capital structure literature, which has largely ignored the role of anti-competitive behavior. |
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