Work

Capital Structure And Product Market Rivalry: How Do We Reconcile Theory And Evidence?

Year: 1995

Type: article

Abstract: This paper presents empirical evidence on the interaction of capital structure decisions and product market behavior. We examine when firms recapitalize and increase the proportion of debt in their capital structure. The evidence in this paper shows that firms with low productivity plants in highly concentrated industries are more likely to recapitalize and increase debt financing. This finding suggests that debt plays a role in highly concentrated industries where agency costs are not significantly reduced by product market competition. Following the empirical evidence we introduce the "strategic investment" effects of debt and argue that this effect, in conjunction with agency costs, appears to fit the data.

Source: Chapman University Digital Commons (Chapman University)

Authors: Dan Kovenock, Gordon Phillips

Institutions: Ifo Institute for Economic Research, Chapman University, Dartmouth College, National Bureau of Economic Research

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1921889112

FWCI: 8.566

Cites: 2

Cited by: 86

Related to: 10