Product Market Competition and Financial Decisions During a Financial Crisis

Financial Management, Forthcoming

46 Pages Posted: 9 Apr 2015

See all articles by Zhaoxia Xu

Zhaoxia Xu

UNSW Australia Business School, School of Banking and Finance

Soku Byoun

Baylor University

Date Written: April 7, 2015

Abstract

We find that, in the presence of the “flight to quality” during the 2007-2008 financial crisis, firms that depended less on external financing (or internal finance dependent firms) prior to the crisis were able to secure additional financing and increased investments, while external finance dependent firms significantly contracted their external financing and investments. Internal finance dependent firms’ increased investments during the crisis were associated with higher market share growth, while external finance dependent competitors lost their market share. Moreover, the increased investments and market share growth of internal finance dependent firms during the crisis were pronounced in competitive industries and among firms with similar products. The results indicate that firms’ financial decisions during the financial crisis are interrelated with their product market dimensions.

Keywords: Predation, Flight to quality, Financial crisis, Competition

JEL Classification: G10, G31, G32

Suggested Citation

Xu, Zhaoxia and Byoun, Soku, Product Market Competition and Financial Decisions During a Financial Crisis (April 7, 2015). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2591735

Zhaoxia Xu (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Soku Byoun

Baylor University ( email )

Department of Finance Insurance & Real Estate
P.O.Box 98004
Waco, TX 76712
254-710-7849 (Phone)

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