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Product Market Threats, Payouts, and Financial FlexibilityGerard HobergUniversity of Maryland - Department of Finance Gordon M. PhillipsUniversity of Southern California; National Bureau of Economic Research (NBER) Nagpurnanand R. PrabhalaUniversity of Maryland - Robert H. Smith School of Business August 30, 2012 Journal of Finance, Forthcoming Abstract: We examine how product market threats influence firm payout policy and cash holdings. We develop new measures of competitive threats using firms’ product text descriptions. Our primary measure, product market fluidity, captures changes in rival firms’ products relative to the firm’s products. We show that fluidity decreases firm propensity to make payouts via dividends or repurchases and also increases the cash held by firms, especially for firms with less access to financial markets. These results are consistent with the hypothesis that firms’ financial policies are significantly shaped by product market threats and dynamics.
Number of Pages in PDF File: 55 Keywords: Dividends, Repurchases, Payout, Cash, Product Markets, Dynamic Product Markets, Competition JEL Classification: G35, G30, G31, L10, L21 Accepted Paper SeriesDate posted: March 17, 2011 ; Last revised: September 7, 2012Suggested CitationContact Information
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