Vertical Integration and Firm Performance

Theoretical and empirical research in the past decades has ad-vanced our understanding of what determines the vertical boundary of a \u85rm. An equally important but much less understood issue is the impacts of vertical integration on \u85rm performance, mainly because of the endogeneity issue. Using a survey of Chinas manufacturing \u85rms, we establish the causal impacts of vertical integration on \u85rm perfor-mance by adopting the instrumental variable approach to deal with the endogeneity issue. We \u85nd that the degree of vertical integration causes a negative impact on \u85rm sales, market share and productivity, but a positive impact on product prices