Capital Structure under Collusion

42 Pages Posted: 1 Dec 2016 Last revised: 4 Nov 2019

See all articles by Daniel Ferrés

Daniel Ferrés

Universidad de Montevideo

Gaizka Ormazabal

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI)

Paul Povel

University of Houston - Department of Finance, C.T. Bauer College of Business

Giorgo Sertsios

Universidad de los Andes, Chile

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2019

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.

Keywords: Capital Structure; Financial Leverage; Collusion; Cartels

JEL Classification: G32, L12

Suggested Citation

Ferrés, Daniel and Ormazabal, Gaizka and Povel, Paul and Sertsios, Giorgo, Capital Structure under Collusion (October 30, 2019). Journal of Financial Intermediation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2877374 or http://dx.doi.org/10.2139/ssrn.2877374

Daniel Ferrés

Universidad de Montevideo ( email )

Puntas de Santiago 1604
Montevideo, Montevideo 11500
Uruguay

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Paul Povel (Contact Author)

University of Houston - Department of Finance, C.T. Bauer College of Business ( email )

University of Houston
334 Melcher Hall
Houston, TX 77204
United States
713-743-4759 (Phone)

HOME PAGE: http://www.bauer.uh.edu/povel

Giorgo Sertsios

Universidad de los Andes, Chile ( email )

Mons. Álvaro del Portillo
Las Condes
Santiago, 12.455
Chile

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