Working Paper

Vertical Integration and Supplier Finance

Authors

  • Erasmus Kersting
  • Holger Görg
Publication Date

We investigate the financial implications of a multinational firm’s choice between outsourcing and integration from the perspective of the supplier. Using a simple model, we explore the extent to which an integrated supplier’s access to finance, as well as its sources of funding, change relative to a firm supplying a multinational at arm’s-length. The model predicts that integrated firms have better access to finance and cover a larger share of their costs using internal funds. Furthermore, improvements in a host country’s level of financial development have less of an impact on the financial situation of integrated suppliers. We present empirical evidence from firm-level data for over 60 countries broadly supporting the predictions.

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Info

JEL Classification
F23, G32

Key Words

  • Financial Constraints
  • Multinational Companies
  • Vertical Integration