Abstract

http://ssrn.com/abstract=2023029
 
 

References (68)



 
 

Citations (3)



 


 



How Does Corporate Investment Respond to Increased Entry Threat?


Laurent Frésard


University of Maryland - Robert H. Smith School of Business

Philip Valta


University of Geneva and Swiss Finance Institute

February 11, 2015


Abstract:     
We study how product market interactions affect investment. We use reductions of import tariffs to examine how incumbents modify investment when the threat of rivals' entry intensifies. Incumbents reduce investment by 7.2% in response to higher entry threat. Consistent with theory, the investment reduction varies across market structures: It concentrates in markets where competitive actions are strategic substitutes, where deterring entry is costly, and where investment makes incumbents look soft. Incumbents only reduce tangible investment which comprises commitment value, but do not reduce intangible investment. Our results provide novel evidence on how and why firms' interactions influence corporate investment.

Number of Pages in PDF File: 55

Keywords: Corporate investment, Entry Threat, Strategic Interactions, Market Structures

JEL Classification: G15, G34, G31


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Date posted: March 16, 2012 ; Last revised: February 12, 2015

Suggested Citation

Frésard, Laurent and Valta, Philip, How Does Corporate Investment Respond to Increased Entry Threat? (February 11, 2015). Available at SSRN: http://ssrn.com/abstract=2023029 or http://dx.doi.org/10.2139/ssrn.2023029

Contact Information

Laurent Frésard (Contact Author)
University of Maryland - Robert H. Smith School of Business ( email )
College Park, MD 20742
United States
Philip Valta
University of Geneva and Swiss Finance Institute ( email )
Bld du Pont D'Arve 40
Geneva, 1211
Switzerland

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References:  68
Citations:  3

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