Capital Structure Under Collusion
63 Pages Posted: 25 Jul 2017
Date Written: July 2017
We study the financial leverage of firms that collude by forming a cartel. We find that cartel firms have lower leverage ratios during collusion periods, consistent with the idea that reductions in leverage help increase cartel stability. Cartel firms have a surprisingly large economic footprint (they represent more than 20% of the total market capitalization in the U.S.), so understanding their decisions is relevant. Our findings show that anti-competitive behavior has a significant effect on capital structure choices. They also shed new light on the relation between profitability and financial leverage.
Keywords: Capital Structure, cartels, Collusion, Financial Leverage, Financial Policies, Trigger Strategies
JEL Classification: G32, L12
Suggested Citation: Suggested Citation