Strategic Competition, Capital Structure, and Market Share

32 Pages Posted: 6 Mar 2008 Last revised: 10 Jun 2008

See all articles by Abe de Jong

Abe de Jong

Rotterdam School of Management, Erasmus University

Thuy Thu Nguyen

Erasmus University Rotterdam (EUR) - Rotterdam School of Management, Department of Finance; Business Administration Faculty, Foreign Trade University

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM)

Date Written: June 5, 2008

Abstract

This paper examines the interaction between a firm's capital structure and its market share. Theory predicts that this relation depends on the type of strategic competition (i.e., Cournot or Bertrand). We distinguish between Cournot and Bertrand industries in a sample of U.S. manufacturing firms based on an empirical measure of strategic substitutes and strategic complements. We study the joint determination of leverage and market share and test the theoretical predictions of Dasgupta and Titman (1998) and Faure-Grimaud (2000). We show that in Cournot (Bertrand) competition, leverage negatively (positively) affects market share. Conversely, market share has a negative impact on leverage for Cournot firms, but no impact for Bertrand firms. Our findings emphasize the role of strategic competition in the interaction between capital structure and market share.

Keywords: Strategic debt, capital structure, market share, Cournot competition, Bertrand competition

JEL Classification: G32, L10, L60

Suggested Citation

de Jong, Abe and Nguyen, Thuy Thu and Van Dijk, Mathijs A., Strategic Competition, Capital Structure, and Market Share (June 5, 2008). EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1101359 or http://dx.doi.org/10.2139/ssrn.1101359

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Thuy Thu Nguyen (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management, Department of Finance ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
0031 1048 2792 (Phone)

Business Administration Faculty, Foreign Trade University ( email )

91 Chua Lang
Dong Da District
Hanoi
Vietnam

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31 10 408 1124 (Phone)
+31 10 408 9017 (Fax)

HOME PAGE: http://mathijsavandijk.com/

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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