Journal Article

Vertical Integration and Supplier Finance

Authors

  • Holger Görg
  • Erasmus Kersting
Publication Date

This paper studies access to finance by suppliers that are linked to a multinational enterprise. The theoretical framework consists of a property rights model featuring suppliers that are either vertically integrated or sell to the multinational at arm's-length, which in turn affects the availability of different sources of credit. Integrated suppliers are predicted to cover a relatively larger share of their costs using internal sources, consisting of initial wealth plus funds from the multinational parent. In addition, due to the diminished dependence on external funds (local bank credit) integrated suppliers' funding shares are less responsive to changes in their home country.s level of financial development. We test the model's predictions using firm survey data from over 50 developing and emerging countries and find broad support.

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Info

JEL Classification
F23, G32, O16
DOI
10.1111/caje.12257

Key Words

  • Financial Constraints
  • Multinational Companies
  • Vertical Integration