Capital Structure Under Collusion

63 Pages Posted: 25 Jul 2017

See all articles by Daniel Ferrés

Daniel Ferrés

Universidad de Montevideo

Gaizka Ormazabal

University of Navarra, IESE Business School

Paul Povel

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

Giorgo Sertsios

Universidad de los Andes, Chile

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Date Written: July 2017

Abstract

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

Ferrés, Daniel and Ormazabal, Gaizka and Povel, Paul and Sertsios, Giorgo, Capital Structure Under Collusion (July 2017). CEPR Discussion Paper No. DP12151. Available at SSRN: https://ssrn.com/abstract=3008332

Daniel Ferrés (Contact Author)

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

Paul Povel

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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