Capital Structure under Collusion
42 Pages Posted: 1 Dec 2016 Last revised: 4 Nov 2019
Date Written: October 30, 2019
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: Suggested Citation