Debt and firms' relationships: the Italian evidence

2006-05-30T10:09:30Z (GMT) by Claudio Piga
Theories that predict the strategic use of debt by players engaged in a vertical relationship are tested using an empirical model of debt usage. It is found that firms selling mainly to other firms are characterised on average by a higher level of debt. No evidence supports the notion that buyers increase their leverage to commit themselves not to behave opportunistically towards their suppliers. The results in the paper also suggest that group organisation limits the incentive to use debt strategically within the holding-subsidiaries relationship.