Corporate Investment and Innovation in the Presence of Competitor Constraints

47 Pages Posted: 10 Mar 2016 Last revised: 4 Nov 2016

William David Grieser

Tulane University

Zack Liu

University of Texas at Austin

Date Written: November 3, 2016

Abstract

We study the relation between investment behavior and competitor financial constraints. Using inter-firm patent citations and text-based product market similarities to identify intransitive competitor networks, we find that firms increase investment spending, patenting activity, and employee poaching when competitor constraints become more binding. In addition, firms shift their investment composition (product market and patent portfolios) towards competitors who experience a relative tightening of constraints. These effects are robust to controlling for selection and correlated effects across competitors. To mitigate endogeneity concerns, we exploit the 2004 AJCA tax holiday and the 1989 junk bond crisis as exogenous shocks to competitor constraints and find similar effects.

Keywords: Financial Constraints, Investment, Competition, R&D, Product Markets, Patents

Suggested Citation

Grieser, William David and Liu, Zack, Corporate Investment and Innovation in the Presence of Competitor Constraints (November 3, 2016). Available at SSRN: https://ssrn.com/abstract=2745049

William David Grieser (Contact Author)

Tulane University ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: http://www.williamgrieser.com

Zack Liu

University of Texas at Austin ( email )

Austin, TX 78712
United States

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