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The Effect of Hold-up Problems on Corporate Investment: Evidence from Import Tariff Reductions

Author

Listed:
  • Thorsten Martin

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Clemens Otto

Abstract

We provide empirical evidence of the importance of hold-up problems for investment decisions in a large number of U.S. manufacturing industries. We exploit variation in the severity of hold-up problems between upstream suppliers and downstream customers resulting from import tariff reductions in upstream industries. We find that downstream customers respond by increasing investment. As theory predicts, the effect is stronger if the customers have little bargaining power and are not vertically integrated with their suppliers, if the suppliers produce differentiated inputs, if high uncertainty inhibits the use of long-term contracts, and if shipping costs are low.

Suggested Citation

  • Thorsten Martin & Clemens Otto, 2016. "The Effect of Hold-up Problems on Corporate Investment: Evidence from Import Tariff Reductions," Working Papers hal-01941542, HAL.
    • Handle: RePEc:hal:wpaper:hal-01941542
    as

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