Author(s)

Wan Wenxin ¹

Affiliation(s)

¹ College of Economics, Guangxi University, Nanning, Guangxi, China

Corresponding Author

Wan Wenxin

ABSTRACT

The aim of this investigation is to analyze the impact of firms' vertical integration on risk under uncertainty shocks. After conducting a thorough literature review and theoretical analysis, we conclude that vertical integration has both positive and negative effects on firm risk. Positive mechanisms consist of reducing transaction costs, boosting financing capacity, increasing barriers to entry and monopolies, and decreasing taxes. Negative mechanisms encompass reduced resilience, increased management costs, weakened employee incentives, and lowered industrial chain resilience. The question of whether an enterprise should be vertically integrated remains unresolved. Thus, each enterprise must base its decision of whether to vertically integrate on its unique situation. Enterprises must evaluate their operational, coordination, mechanism maintenance, and technology research and development capabilities to determine if they possess the necessary conditions and advantages to execute a vertical integration strategy.

KEYWORDS

Vertical integration; Uncertainty shocks; Risk transmission mechanisms

CITE THIS PAPER

Wan Wenxin, A study of the mechanism of firms' vertical integration on risk under uncertainty shocks. Financial Engineering and Risk Management (2023) Vol. 6: 45-54. DOI: http://dx.doi.org/10.23977/ferm.2023.061107.

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