Debt as a (Credible) Collusive Device, or: “Everybody Happy but the Consumer”
Data
01.01.1999
01.01.1999
Autori
Giancarlo Spagnolo
Codice JEL
D21,G32,L13,L41
D21,G32,L13,L41
Parole chiave:
Banks,oligopoly,financial market product market interaction,capital structure,managerial incentives,collusion,governance
Banks,oligopoly,financial market product market interaction,capital structure,managerial incentives,collusion,governance
Publisher
Economy and Society
Economy and Society
Editor
Fausto Panunzi
Fausto Panunzi
The paper proposes a theory of the anti-competitive effects of debt finance based on the interaction between capital structure, managerial incentives, and firms’ ability to sustain collusive agreements. It shows that shareholders’ commitments that reduce conflicts with debtholders such as hiring managers with valuable reputations or "conservative" incentives besides reducing the agency costs of debt finance also greatly facilitate tacit collusion in product markets. Concentrated or collusive credit markets, or large banking groups, can ensure the credibility of such commitments (renegotiation-proofness), thereby "exporting" collusion through leverage in otherwise competitive downstream product markets.