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The Link Between Capital Structure And Product Market Competition
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Book Synopsis The Link Between Capital Structure and Product Market Competition by : Lee Greer
Download or read book The Link Between Capital Structure and Product Market Competition written by Lee Greer and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The relationship between capital structure and product market competition is examined using a theoretical model and two econometric analyses. In an extension of Glazer (1994), a theoretical model is derived that allows a quantity leader and follower to issue debt and then twice play a sequential product market game, after which each firm must either repay its debt in full or go bankrupt. It is demonstrated that the follower maximizes operating profit irrespective of capital structure but that the levered quantity leader in every period produces more than the Stackelberg profit-maximizing level of output. As such, the industry characterized by a financially levered leader and follower is more competitive than it otherwise would be. Simultaneous equations models consisting of a demand and supply relation are used to analyze monthly data from the domestic steel industry so as to test whether the industry's increased reliance on debt finance over the period 1958 to 1981 affected competition in the market for steel. The supply relation, which follows from the assumption that firms simultaneously select output in order to maximize profit, is augmented with a sales-weighted debt to market value ratio. Two-stage least squares (2SLS), weighted two-stage least squares (W2SLS), and iterative weighted three-stage least squares (IW3SLS) regressions are estimated. Results from all regressions show a statistically significant and positive relationship between the sales-weighted debt-value ratio and the price of steel, which suggests that increased debt finance served to reduce competition in the domestic steel industry over the sample period. In light of the fact that U.S. Steel's market share over the sample period was significantly higher and less volatile than that of any other integrated producer, the second econometric model tests the null hypothesis of quantity leadership, using insights from the theoretical model. Two supply relations, one for the leader and one for the follower, are derived and estimated. To account for the possibly endogenous decision on the part of U.S. Steel to issue debt, a binomial probit is estimated and its fitted probabilities are included as a predetermined variable in the leader's supply relation. Results show that one must reject the null hypothesis of quantity leadership and that U.S. Steel's decision to issue debt had a positive but statistically insignificant effect on the composite steel price.
Book Synopsis Increased Debt and Product Market Competition by : Gordon M. Phillips
Download or read book Increased Debt and Product Market Competition written by Gordon M. Phillips and published by DIANE Publishing. This book was released on 1993-07 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tests whether capital structure influences product market competition between firms that have sharply increased the debt in their capital structure.
Book Synopsis Capital Structure and Product Market Competition by : Judith A. Chevalier
Download or read book Capital Structure and Product Market Competition written by Judith A. Chevalier and published by . This book was released on 1993 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financing Decisions and Advertising by : Gustavo Grullon
Download or read book Financing Decisions and Advertising written by Gustavo Grullon and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how a firm's financial structure affects the intensity with which it competes in the product market. Using a sample of firms that raise significant amounts of capital, we study the extent of their non-price competition, as measured by their advertising expenditures, following this event. We find that after controlling for other factors, firms whose financial leverage has decreased as a result of the new funding increase their advertising competition significantly more than firms whose leverage has increased. We undertake both an instrumental variables approach and a quot;reverse causalityquot; test to address the issue of the endogeneity of the capital structure and advertising decisions and show that it is indeed capital structure changes that influence the degree of advertising competition. We also find that the reaction of the sample firms' industry rivals is influenced as well by their capital structures. Specifically, we find that a rival firm responds more (less) aggressively - relative to its' peers - in the increase of its' own advertising, if it is less (more) levered than the sample firm in its' industry that has initiated the more intense advertising competition. Overall, our results support the view that financial leverage appears to have a quot;dampeningquot; effect on the intensity with which a firm chooses to compete in the product market.
Book Synopsis Capital Structure Under Imperfect Product Market Competition by : Hae Won (Henny) Jung
Download or read book Capital Structure Under Imperfect Product Market Competition written by Hae Won (Henny) Jung and published by . This book was released on 2018 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show how product market competition affects capital structure by developing a tractable model that embeds the tradeoff between the tax benefits and bankruptcy costs of debt in an industry equilibrium setting with heterogeneous, imperfectly competitive firms. Different determinants of competition--fixed production costs and product substitutability--have contrasting implications for the effects of competition on firm leverage. Firms in more competitive industries with greater product substitutability are more leveraged, whereas firms in more competitive industries with lower fixed production costs have lower leverage. We show robust support for our predictions in our empirical analysis of U.S. nonfinancial firms.
Book Synopsis Capital Structure and Product Market Competition by : Daniil Vladimirovich Osipov
Download or read book Capital Structure and Product Market Competition written by Daniil Vladimirovich Osipov and published by . This book was released on 2012 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Product Market Competition, Ownership Structure and Capital Structure by : Ernesto Santiago Schargrodsky
Download or read book Product Market Competition, Ownership Structure and Capital Structure written by Ernesto Santiago Schargrodsky and published by . This book was released on 1997 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Capital Structure and Product Markets Interactions by : Murillo Campello
Download or read book Capital Structure and Product Markets Interactions written by Murillo Campello and published by . This book was released on 2002 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides firm- and industry-level evidence on the effects of capital structure on product market outcomes for a large cross-section of industries. The analysis uses shocks to aggregate demand as surrogates for exogenous changes in the product market environment, dealing with concerns about the endogenous nature of the relation between financial structure and competitive performance. I find that debt financing has a negative impact on firm (relative-to-industry) sales growth in industries where rivals are relatively unlevered during recessions, but not during booms. In contrast, no such effects are observed for firms competing in high-debt industries. At the industry level, I find that markups are more countercyclical when industry debt is high. The cyclical dynamics I find for firm sales growth and for industry markups are consistent with Chevalier and Scharfstein's (1996) prediction that firms that rely more heavily on external financing are more prone to boost short-term profits at the expense of future sales in response to negative shocks to demand, and that the competitive outcomes resulting from such actions depend on the financial structures of their industry rivals.
Book Synopsis Optimal Capital Structure, Capacity Choice and Product Market Competition by : Yongqiang Chu
Download or read book Optimal Capital Structure, Capacity Choice and Product Market Competition written by Yongqiang Chu and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a dynamic trade-off model to study the interaction between product market competition and capital structure. Firms make interdependent entry, investment, financing and default decisions. Trade-off between tax benefits, bankruptcy costs and strategic considerations in the product market determines optimal capital structure. The model delivers the following results that are consistent with empirical evidences: (1) Firms may have non-linear and non-monotonic reactions to their competitors' change of leverage, depending on their original levels of leverage; (2) The within-industry variation of leverage can be large, because incumbents and entrants use leverage strategically differently; (3) Entrants have higher leverage than incumbents in equilibrium, because the incumbents use lower leverage to gain strategic advantages over the entrants.
Book Synopsis The Relationship between Capital Structure and Product Markets by : David J. Smith
Download or read book The Relationship between Capital Structure and Product Markets written by David J. Smith and published by . This book was released on 2012 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether the capital structure of New Zealand firms influences their product-market performance in the period from 1984 to 2008. Our main findings are that the use of leverage by publicly listed New Zealand companies leads to an increase in relative-to-industry sales growth, but a decrease in relative-to-industry return on assets (ROA). We also conduct a reverse causality test by examining whether sales growth and ROA influence leverage. We find no evidence that sales growth has an impact on the use of debt, but significant evidence that ROA is negatively correlated with its use. Our results suggest that New Zealand firms use debt to compete more aggressively in their product markets, even though this strategy comes at a cost of lower relative-to-industry profitability. A possible explanation for this behaviour is the more competitive trading environment that has developed in New Zealand over the last 25 years.
Book Synopsis A New Approach to Measuring Competition in the Loan Markets of the Euro Area by : Michiel van Leuvensteijn
Download or read book A New Approach to Measuring Competition in the Loan Markets of the Euro Area written by Michiel van Leuvensteijn and published by . This book was released on 2007 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such asthe loan market, where as many well-known measures of competition can consider the entire banking market only. A caveat of the Boone-indicator may be that it assumes that banks generally pass on at least part of their efficiency gains to their clients. Like most other model-basedmeasures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major EU countries as well as, for comparison, the UK, the US and Japan. Bearing the mentioned caveats in mind, our findings indicate that over the period 1994-2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive. Turning to competition among specific types of banks, commercial banks tend to be more competitive, particularly in Germany and the US, than savings and cooperative bank.
Book Synopsis Capital Structure, Product Market Competition and Firm Performance by : Samuel Fosu
Download or read book Capital Structure, Product Market Competition and Firm Performance written by Samuel Fosu and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Debt, Investment, and Product Market Competition by : Matthew J. Clayton
Download or read book Debt, Investment, and Product Market Competition written by Matthew J. Clayton and published by . This book was released on 2008 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical literature on the interaction between capital structure, investment, and product market decisions suggests that debt leads to lower investment expenditures and weaker product market competition. Theoretical literature in this area has been unable to fully explain this finding (perhaps because all theoretical papers look only at two of the above decisions). This paper develops a model which examines all three decisions and shows that debt and investment can be substitutes in a model where firms rationally take on debt. Furthermore, it is demonstrated that when firms compete with prices in the product market, an increase in debt leads to lower investment and higher prices.
Book Synopsis Capital Structure and Imperfect Competition in Product Markets by : Franklin Allen
Download or read book Capital Structure and Imperfect Competition in Product Markets written by Franklin Allen and published by . This book was released on 1987 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Increased Debt and Product Market Competition by : Gordon M. Phillips
Download or read book Increased Debt and Product Market Competition written by Gordon M. Phillips and published by . This book was released on 1991 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Corporate Capital Structures in the United States by : Benjamin M. Friedman
Download or read book Corporate Capital Structures in the United States written by Benjamin M. Friedman and published by University of Chicago Press. This book was released on 2009-05-15 with total page 404 pages. Available in PDF, EPUB and Kindle. Book excerpt: The research reported in this volume represents the second stage of a wide-ranging National Bureau of Economic Research effort to investigate "The Changing Role of Debt and Equity in Financing U.S. Capital Formation." The first group of studies sponsored under this project, which have been published individually and summarized in a 1982 volume bearing the same title (Friedman 1982), addressed several key issues relevant to corporate sector behavior along with such other aspects of the evolving financial underpinnings of U.S. capital formation as household saving incentives, international capital flows, and government debt management. In the project's second series of studies, presented at the National Bureau of Economic Research conference in January 1983 and published here for the first time along with commentaries from that conference, the central focus is the financial side of capital formation undertaken by the U.S. corporate business sector. At the same time, because corporations' securities must be held, a parallel focus is on the behavior of the markets that price these claims.
Book Synopsis Capital Structure, Strategic Competition, and Governance by : Nguyen Thu Thuy
Download or read book Capital Structure, Strategic Competition, and Governance written by Nguyen Thu Thuy and published by . This book was released on 2008 with total page 167 pages. Available in PDF, EPUB and Kindle. Book excerpt:
