Capital Structure under Collusion
66 Pages Posted: 1 Dec 2016 Last revised: 1 Feb 2018
Date Written: January 23, 2018
We study the financial leverage of firms that collude in their product markets by forming a cartel. We find that cartel firms have lower financial leverage during collusion years. This is consistent with the theory that low financial leverage helps make illegal cartel agreements more stable. The literature has largely ignored this possible role of capital structure, but understanding the decisions of cartel firms is important, given their surprisingly large economic footprint.
Keywords: Capital Structure, Financial Leverage, Financial Policies, Collusion, Cartels, Trigger Strategies
JEL Classification: G32, L12
Suggested Citation: Suggested Citation