Product Market Threats, Payouts, and Financial Flexibility
University of Southern California - Marshall School of Business
Gordon M. Phillips
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
University of Maryland - Robert H. Smith School of Business; CAFRAL
August 30, 2012
Journal of Finance, Forthcoming
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
Date posted: March 17, 2011 ; Last revised: September 7, 2012
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