Monday, July 17, 2017

Vertical Integration and Firm Productivity

Hongyi Li, UNSW Australia Business School, School of Economics, Yi Lu, National University of Singapore (NUS) - Department of Economics, and Zhigang Tao, The University of Hong Kong - School of Business explore Vertical Integration and Firm Productivity.

ABSTRACT: This paper uses three cross‐industry datasets from China and other developing countries to study the effect of vertical integration on firm productivity. Our findings suggest that vertical integration has a negative impact on productivity, in contrast to recent studies based on U.S. firms. We argue that in settings with poor corporate governance, vertical integration reduces firm productivity because it enables inefficient rent‐seeking by insiders.

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