Download or read book Optimal Debt Contracts and Product Market Competition with Exit and Entry written by Naveen Khanna and published by . This book was released on 2008 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that optimal debt contracts in the presence of product market competition are typically different from standard debt contracts. We consider a market with two incumbents, one levered (target) and one with deep pockets (competitor). Renewal of target's debt depends on its profits, which are determined by the competitor's pricing strategy. When the competitor benefits from non-renewal of target's debt, it has incentive to price more aggressively. To counter this, bondholders make renewal less profit sensitive, and the optimal debt contract is smooth (nonkinked) and concave, and lies below the standard debt contract. Bondholders leave the limited liability constraint slack in a region of profits, and therefore appear to leave money on the table by failing to collect all profits when they fall short of the debt's face value. But this flattening of the contract results in higher profits for the levered firm for each state of demand, and a higher expected payout for bondholders. The larger the competitor's benefit from non-renewal, the flatter the contract. On the other hand, when the competitor benefits from renewal of the target's debt (say non-renewal results in target's replacement by a more efficient entrant), then the optimal debt contract is nonsmooth (sometimes taking the form of a binary option), and much more profit sensitive for some profit levels than the standard contract. This increased sensitivity amplifies the competitor's incentive to price less aggressively, resulting in higher profits for the levered firm and higher payout to bondholders. In either case, our results demonstrate the optimal contract must be designed accounting for the impact of the contract itself on the profit function of the levered firm. Furthermore, bondholders prefer lending to weaker firms (firms whose competitors benefit from renewal) because the competitor's pricing incentive, amplified by the more profit sensitive contract, results in higher expected payouts.
Download or read book Product Market Competition and Optimal Debt Contracts written by Antoine Faure-Grimaud and published by . This book was released on 1997 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Debt Contracts and Moral Hazard Along the Business Cycle written by Pietro Reichlin and published by . This book was released on 2000 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Financial Constraints and Product Market Competition written by Paul Povel and published by . This book was released on 2004 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the interaction of financing and output market decisions in a duopoly in which one firm is financially constrained and can borrow funds to finance production costs. Two ideas have been analyzed separately in previous work: some authors argue that debt strategically affects a firm's output market decisions, typically making it more aggressive; others argue that the threat of bankruptcy makes debt financing costly, typically making a firm less aggressive. Our model integrates both ideas; moreover, unlike most previous work we derive debt as an optimal contract. Compared with a situation in which both firms are unconstrained, the constrained firm produces less, while its unconstrained rival produces more; prices are higher for both firms. Both firms' outputs depend on the constrained firm's internal funds; the relationship is U-shaped for the constrained firm and inversely U-shaped for its unconstrained rival. The unconstrained rival has a higher market share, not because of predation but because of the cost disadvantage of the financially constrained firm.
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.
Download or read book Debt Contracts Collapse and Regulation as Competition Phenomena written by Hans Gersbach and published by . This book was released on 1998 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Product Market Competition and the Financing of New Ventures written by Jean-Etienne de Bettignies and published by . This book was released on 2017 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the interaction between venture risk, product market competition and entrepreneurs' choice between bank financing and venture capital (VC) financing. Under bank financing, a debt-type contract emerges as optimal, which allows the entrepreneur to retain full control of the venture and thus yields strong effort incentives, as long as she can service the debt repayment; but leads to liquidation in case of default, making the venture's success quite sensitive to exogenous, even temporary shocks that may hinder debt repayment. Under VC financing an equity-type contract emerges as optimal, which is not sensitive to exogenous shocks, but requires the entrepreneur to share a fraction of the rents with the financier, thus yielding lower effort incentives for the entrepreneur. There exists a threshold level of venture risk such that bank financing is optimal if and only if venture risk is below that threshold. Product market competition increases the value of stronger entrepreneurial incentives, and thus increases the maximum level of risk the entrepreneur is willing to take before switching from bank financing to VC financing. This is a robust result that is shown to hold in various models of competition, including Hotelling, Salop, Dixit-Stiglitz, Cournot-to-Bertrand switch.
Download or read book Anti competitive Financial Contracting written by Giacinta Cestone and published by . This book was released on 2002 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Product Market Competition and Debt Choice written by Sabri Boubaker and published by . This book was released on 2018 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated by prior research on the informational and monitoring role of product market competition, we examine how competitive pressure affects firms' choice between bank debt and public debt. Using a sample of 3,675 U.S. firms over the period 2001-2013, we find that competitive pressure from the product market leads firms to rely less on bank debt financing. In a natural experiment setting, we also find that there is a significant decrease in firm reliance on bank debt after large import tariff reductions. In additional analyses, we show that the effect of competitive pressure on debt choice is more pronounced for firms with greater exposure to competition, higher financial constraints, and weaker governance practices. Moreover, we find that product market competition is associated with long-term maturity debt. Taken together, our study generates the important insight that external governance pressure from the product market acts as an alternate governance mechanism for bank debt monitoring.
Download or read book Corporate Finance Innovation and Strategic Competition written by Cornelia Neff and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book analyzes how corporate finance decisions influence strategic competition and innovation of firms in the product market. We consider bank loan financing and venture capital financing. Due to assymetric information, firms must sign special contracts with banks or venture capitalists. The financial contracts, in turn, determine the competitive strategies of firms in the product market. Firms compete in prices for market shares. In addition to that, firms invest in R&D in order to induce product or process innovation. We show that better access to financial resources improves a firm's market position and leads to a higher rate of innovation. Cash-rich firms may even decide to prey upon financially restricted rivals in order to prevent new market entry or to induce market exit.
Download or read book The Theory of Corporate Finance written by Jean Tirole and published by Princeton University Press. This book was released on 2010-08-26 with total page 657 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Magnificent."—The Economist From the Nobel Prize–winning economist, a groundbreaking and comprehensive account of corporate finance Recent decades have seen great theoretical and empirical advances in the field of corporate finance. Whereas once the subject addressed mainly the financing of corporations—equity, debt, and valuation—today it also embraces crucial issues of governance, liquidity, risk management, relationships between banks and corporations, and the macroeconomic impact of corporations. However, this progress has left in its wake a jumbled array of concepts and models that students are often hard put to make sense of. Here, one of the world's leading economists offers a lucid, unified, and comprehensive introduction to modern corporate finance theory. Jean Tirole builds his landmark book around a single model, using an incentive or contract theory approach. Filling a major gap in the field, The Theory of Corporate Finance is an indispensable resource for graduate and advanced undergraduate students as well as researchers of corporate finance, industrial organization, political economy, development, and macroeconomics. Tirole conveys the organizing principles that structure the analysis of today's key management and public policy issues, such as the reform of corporate governance and auditing; the role of private equity, financial markets, and takeovers; the efficient determination of leverage, dividends, liquidity, and risk management; and the design of managerial incentive packages. He weaves empirical studies into the book's theoretical analysis. And he places the corporation in its broader environment, both microeconomic and macroeconomic, and examines the two-way interaction between the corporate environment and institutions. Setting a new milestone in the field, The Theory of Corporate Finance will be the authoritative text for years to come.
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.
Download or read book Empirical Note on Debt Structure and Financial Performance in Ghana written by John Gartchie Gatsi and published by Xlibris Corporation. This book was released on 2016-01-15 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book deals extensively with theoretical, empirical, and robust methodology of capital structure in the context of debt structure in the Ghanaian financial sector. The study investigated the relationship between debt structure and financial performance of financial institutions in Ghana over the period 20022011. Using panel data methodology, it was discovered that there is a significant difference in the capital structure practices of insurance companies and banks. Short-term debts and total debt are negatively significant in determining returns on equity (ROE) and returns on asset (ROA) in the financial institutions of Ghana.
Download or read book Corporate Payout Policy written by Harry DeAngelo and published by Now Publishers Inc. This book was released on 2009 with total page 215 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate Payout Policy synthesizes the academic research on payout policy and explains "how much, when, and how". That is (i) the overall value of payouts over the life of the enterprise, (ii) the time profile of a firm's payouts across periods, and (iii) the form of those payouts. The authors conclude that today's theory does a good job of explaining the general features of corporate payout policies, but some important gaps remain. So while our emphasis is to clarify "what we know" about payout policy, the authors also identify a number of interesting unresolved questions for future research. Corporate Payout Policy discusses potential influences on corporate payout policy including managerial use of payouts to signal future earnings to outside investors, individuals' behavioral biases that lead to sentiment-based demands for distributions, the desire of large block stockholders to maintain corporate control, and personal tax incentives to defer payouts. The authors highlight four important "carry-away" points: the literature's focus on whether repurchases will (or should) drive out dividends is misplaced because it implicitly assumes that a single payout vehicle is optimal; extant empirical evidence is strongly incompatible with the notion that the primary purpose of dividends is to signal managers' views of future earnings to outside investors; over-confidence on the part of managers is potentially a first-order determinant of payout policy because it induces them to over-retain resources to invest in dubious projects and so behavioral biases may, in fact, turn out to be more important than agency costs in explaining why investors pressure firms to accelerate payouts; the influence of controlling stockholders on payout policy --- particularly in non-U.S. firms, where controlling stockholders are common --- is a promising area for future research. Corporate Payout Policy is required reading for both researchers and practitioners interested in understanding this central topic in corporate finance and governance.
Download or read book The Impact of Incomplete Contracts on Economics written by Philippe Aghion and published by Oxford University Press. This book was released on 2015-12-22 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 1986 article by Sanford J. Grossman and Oliver D. Hart titled "A Theory of Vertical and Lateral Integration" has provided a framework for understanding how firm boundaries are defined and how they affect economic performance. The property rights approach has provided a formal way to introduce incomplete contracting ideas into economic modeling. The Impact of Incomplete Contracts on Economics collects papers and opinion pieces on the impact that this property right approach to the firm has had on the economics profession.
Download or read book Financial Markets and Corporate Strategy European Edition 2e written by David Hillier and published by McGraw Hill. This book was released on 2011-01-16 with total page 881 pages. Available in PDF, EPUB and Kindle. Book excerpt: The second European edition of Financial Markets and Corporate Strategy provides comprehensive coverage of financial markets and corporate finance, brought to life by real world examples, cases and insights. Placed in a truly international context, this new and updated edition takes an academic and practical view-point to guide students through the challenges of studying and practicing finance. Aimed specifically at an international audience, this edition boasts hundreds of references to new and relevant non-US research papers from top finance journals. Whilst retaining the well respected structure of the successful US text, Professor David Hillier has also made a number of additions which include: Fully updated research, data and examples in every chapter. Coverage of the global financial crisis, the impact it made on the financial markets and the lessons being learnt by the finance industry. A stronger emphasis on corporate governance and agency theory. Updates on accounting standards, bankruptcy laws, tax rules and tax systems.
Download or read book Financial Markets and Corporate Strategy European Edition 3e written by HILLIER, GRINBL and published by McGraw Hill. This book was released on 2023-01-26 with total page 807 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global pandemic restrictions, climate change, geopolitical tensions, and new artificial technologies have fundamentally impacted international financial markets and corporate strategy. Traditional finance theories have been questioned and their application to corporate decision-making has come under scrutiny like never before. The third edition of Financial Markets and Corporate Strategy provides students with comprehensive and engaging discussions on the strategic challenges facing companies and their financial decisions. Brought to life by real-world examples, international cases and insights from recent research, it guides students through the challenges of studying and practising finance from both an academic and practical viewpoint. Key Features: · Fully updated research of the most important topics, data and examples in every chapter. · Coverage of the impact of climate change, Brexit, the economic growth of China, and new financial technologies · A stronger emphasis on sustainability, ethics, and corporate governance. · Updates on accounting standards, bankruptcy laws, tax rules and tax systems. David Hillier is Professor of Finance, Executive Dean of Strathclyde Business School, and Associate Principal of the University of Strathclyde. Mark Grinblatt is the J. Clayburn LaForce Professor of Finance at the UCLA Anderson School of Management Sheridan Titman is Professor of Finance at the McCombs School of Business.
