Capital structure under collusion

Ferrés, Daniel; Ormazabal, Gaizka; Povel, Paul; Sertsios, Giorgio

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Autor/es

Ferrés, Daniel ; Ormazabal, Gaizka ; Povel, Paul ; Sertsios, Giorgio

Editor

Elsevier

Fecha

2021

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.