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 Increased Debt and Product Market Competition written by Gordon Martin Phillips and published by . This book was released on 1991 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Increased Debt and Product Market Competition written by Gordon Martin Phillips and published by . This book was released on 1991 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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.
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.
Download or read book Product Market Competition and Collateralized Debt written by Vittoria Cerasi and published by . This book was released on 2013 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a model where bank credit depends upon borrowersņ' product market structure. We show that a larger number of competitors in the industry may increase credit availability by enhancing the resale value of the collateralized productive assets. We also study how this benefiijt of competition is affected by the existence of outsiders willing to bid for the collateralized productive assets of the insiders. Our model encompasses the standard case of Cournot competition either when the default probability goes to zero or when there are multiple outsiders bidding for the productive assets. We test the empirical implications of the theoretical analysis exploiting information on the access to ጿinance of small and medium Italian fiijrms and fiijnd supportive evidence.
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 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.
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:
Download or read book Strategic Use of Corporate Debt Under Product Market Competition written by Sasanee Lovisuth and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial and industrial economists are increasingly recognising the interaction between capital structure and firms' strategies in the product market. A debate exists regarding the nature of the relationship between firms' product market power and financial leverage. Particularly, researchers have asked whether the relationship is positive, negative or non-linear. This thesis contributes to this research agenda by developing game-theoretic models, and conducting empirical tests. Specifically, the thesis examines the effects of market power on a firm's use of long-term debt.
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 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 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 Essays on Corporate Finance and Product Market Competition written by Bomi Lee and published by . This book was released on 2014 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains two essays on the aggressive behavior of corporations in product market competition. In the first essay, I investigate how market structure can impact a firm's risk of facing predation by rivals, and hence, its financial policy decisions. Using a simple model, I demonstrate that a firm faces a greater predation threat when it meets the same competitor in many markets, as this competitor is able to internalize more of the benefit, degrading the firm's ability to compete in the future through aggressive actions today. I then test the predictions of the model using 2003-2011 panel data on store location across retail store chains in the US. I find that firms tend to expand more aggressively in markets shared with a competitor experiencing a substantial increase in leverage, or a decline in a credit rating, when they face that competitor in more of the other markets. The expansion relationship was found to be stronger in data from the 2008-2009 financial crisis, a period when difficulty in rolling over or obtaining new debt made it especially hard for weak firms to absorb losses. I also show that a firm facing the same competitors in many markets choose lower levels of leverage and that it decreases that leverage when a merger in the industry increases the amount of competitive overlap it has with other firms. These results suggest that firms are aware of the predation risk due to a competitive overlap and select financial policies to minimize this risk. In the second essay, I study the impact of internally generated funds on product market competition. More specifically, I investigate the idea that firms compete aggressively when their competitors face cash flow shortfalls. Testing this idea is challenging because competitor's cash flow changes are potentially endogenous with respect to firm's behavior. I address this problem in three ways. First, I investigate firm's reaction in a given market when its competitors face cash flow shortfalls outside of that market; this analysis is conducted using store location data on retail store chains. Second, I focus on the 2008-2009 financial crisis period in which retail store chains were hit by a negative demand shock which was hardly expected ex ante. Finally, I use a shock to local economic conditions which varies across markets and the different distributions of store locations across firms as instruments for the changes in competitors' cash flows. I find that a firm expands more in a given market in which it competes with rivals which face a more negative cash flow shortfall in the other markets. This relation is stronger when the competitors were highly leveraged before the crisis. Finally, I illustrate evidence that a firm responds more aggressively to competitor's cash flow shortfalls if it competes with that competitor in many of the same markets; this result is consistent with the prediction of the model in Chapter 1. These essays contribute to the literature by adding new evidence on the predatory behavior of corporations in product market competition.
Download or read book Creditor Control and Product Market Competition written by Matthew T. Billett and published by . This book was released on 2017 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore how rival firms respond when firms in their industry violate debt covenants. We find that rival firms increase advertising expense, and that this increase is proportional to the size of industry violators' pre-existing market share. Rival firm product-market share also increases in the industry market share of violators, and this relation is more pronounced when products are more substitutable. Rival firm operating performance also increases in proportion to the industry market share of violators. Overall, these findings suggest that the increased creditor control associated with covenant violations has a significant influence on rival firms and product-market competition.
Download or read book Increased Debt and Industry Product Markets written by Gordon Martin Phillips and published by . This book was released on 1993 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Product Market Competition and the Impact of Price Uncertainty on Investment written by Vivek Ghosal and published by . This book was released on 1995 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
