Credit constraints, fragmentation, and inter-firm transactions

Sugata Marjit, Lei Yang, Moushakhi Ray

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)


In this paper, we develop a model to illustrate the effects of credit constraints on changes in organizational form and firm entry. We find net borrowers to have a greater incentive to specialize in producing fragments within the production process when internal finance plays an important role (the specialization effect). Moreover, such credit constraint-induced specialization encourages the entry of new firms (the entry effect). When the entry effect dominates the specialization effect, total output is greater under fragmentation, which is contrary to the conventional wisdom that fragmentation may lead to the double-marginalization problem and reduce output.
Original languageEnglish
Pages (from-to)57-66
Number of pages10
JournalAsia-Pacific Journal of Accounting and Economics
Issue number1
Publication statusPublished - 1 Jan 2014


  • credit constraints
  • fragmentation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Accounting


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