In a recent paper, Senior Consultant, Salvatore Piccolo, alongside Raffaele Fiocco and Giancarlo Spagnolo, investigates how corporate finance and governance impact market competition, factoring in the personal bankruptcy costs of managers. The authors’ findings offer a fresh perspective for antitrust authorities monitoring financial links between competitors.
Key takeaways include how debt and managerial incentives can work as complementary tools to sustain collusion, how common lending can become a key driver of collusion when upfront contract commitment is impossible, and how these findings align closely with empirical evidence from industries historically prone to collusive behavior.
Abstract
We investigate the anticompetitive effects of debt financing and managerial incentives in the presence of managers incurring personal bankruptcy costs. We characterize the strategic value for firms’ shareholders of resorting to debt and managerial incentives as complementary devices to sustain collusion among firms, when managerial bankruptcy costs are sufficiently responsive to the severity of financial distress. The shareholders’ inability to commit to debt and managerial contracts implies that common lending to different firms constitutes a key driver for collusion. These results square with the well-documented empirical evidence on debt financing, managerial incentives, and common lending in sectors plagued by collusion.
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The views and opinions expressed in this response are those of the authors and do not necessarily reflect the views of Econic Partners or its clients.
