Abstract

http://ssrn.com/abstract=1944121
 
 

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Competitive Pressure and Corporate Policies


Philip Valta


HEC Paris - Finance Department

Laurent Frésard


University of Maryland - Robert H. Smith School of Business

February 24, 2012

Paris December 2011 Finance Meeting EUROFIDAI - AFFI

Abstract:     
This paper examines the impact of increased product market competition on corporate investment and financing decisions. Using reductions in import tariff rates as a source of variation in competitive pressure, we find that firms simultaneously reduce capital and R&D investment, increase cash reserves and equity, and decrease debt in response to intensified product market competition. These adjustments are especially strong among industry followers, non-diversified and non-exporting firms, and in more competitive markets. Also, the impact of competition turns out to be magnified when firms are exposed to greater financing risk. Overall, the results highlight that competitive pressures play a considerable role in driving the allocation of resources within firms.

Number of Pages in PDF File: 61

Keywords: Product market competition, financing policies, corporate investment, cash holdings, tariff reduction

JEL Classification: G15, G34, G31

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Date posted: October 14, 2011 ; Last revised: April 3, 2013

Suggested Citation

Valta, Philip and Frésard, Laurent, Competitive Pressure and Corporate Policies (February 24, 2012). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: http://ssrn.com/abstract=1944121 or http://dx.doi.org/10.2139/ssrn.1944121

Contact Information

Philip Valta (Contact Author)
HEC Paris (Groupe HEC) - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Laurent Frésard
University of Maryland - Robert H. Smith School of Business ( email )
College Park, MD 20742
United States
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