Abstract

http://ssrn.com/abstract=2023029
 
 

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Competitive Pressure and Corporate Investment: Evidence from Trade Liberalization


Laurent Frésard


University of Maryland - Robert H. Smith School of Business

Philip Valta


HEC Paris - Finance Department

February 15, 2013


Abstract:     
This paper examines how tougher competition from foreign rivals triggered by trade liberalization affects corporate investment. Using a difference-in-differences framework, we find that, on average, U.S. firms significantly reduce capital and R&D investment and accumulate cash reserves in response to large tariff reductions which induce an inflow of foreign rivals. Moreover, and consistent with theory, firms' reaction to increased competition is heterogeneous and depends on their competitive position as well as on the structure of product markets. Our results highlight that trade globalization and competition from foreign firms is an important factor that shapes the investment choices of U.S. firms.

Number of Pages in PDF File: 49

Keywords: Corporate investment, product market competition, trade liberalization, tariff reduction, cash holdings

JEL Classification: G15, G34, G31

working papers series


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Date posted: March 16, 2012 ; Last revised: February 20, 2013

Suggested Citation

Frésard, Laurent and Valta, Philip, Competitive Pressure and Corporate Investment: Evidence from Trade Liberalization (February 15, 2013). 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
HEC Paris (Groupe HEC) - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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