Product Market Competition and the Value of Corporate Cash: Evidence from Trade Liberalization

Posted: 27 Feb 2011 Last revised: 17 Apr 2015

See all articles by Azizjon Alimov

Azizjon Alimov

IESEG School of Management LEM-CNRS UMR 9221

Date Written: November 30, 2013

Abstract

This paper uses the 1989 Canada-U.S. Free Trade Agreement as a source of exogenous variation in product markets to establish the impact of increased competition on the market valuation of corporate cash reserves. I find that the trade liberalization leads to a significant increase in the value of cash for firms experiencing a larger shock to their competitive environment. The impact of the trade liberalization is stronger among firms that face greater risk of losing investment opportunities to rivals. I also show that these inferences about the valuation effect of competition apply more broadly to a large sample of firms.

Keywords: Product Market Competition, Cash holdings, Firm Value

JEL Classification: G32, G34

Suggested Citation

Alimov, Azizjon, Product Market Competition and the Value of Corporate Cash: Evidence from Trade Liberalization (November 30, 2013). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1769351 or http://dx.doi.org/10.2139/ssrn.1769351

Azizjon Alimov (Contact Author)

IESEG School of Management LEM-CNRS UMR 9221 ( email )

1 Parvis de La Défense
Paris, 92044
France

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