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Title: Capital Structure Under Collusion

Author(s): Daniel Ferrés, Gaizka Ormazabal, Paul Povel, Giorgio Sertsios

Publication Date: July 2017

Keyword(s): Capital Structure, cartels, Collusion, Financial Leverage, Financial Policies and Trigger Strategies

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Ferrés, D, Ormazabal, G, Povel, P, Sertsios, G. 2017. 'Capital Structure Under Collusion'. London, Centre for Economic Policy Research. http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12151