DP12151 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, Trigger Strategies|
|Programme Areas:||Financial Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12151|
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.