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Corporate Investment and Innovation in the Presence of Competitor Constraints

67 Pages Posted: 10 Mar 2016 Last revised: 13 Aug 2017

William David Grieser

Texas Christian University

Zack Liu

University of Houston - Department of Finance

Date Written: August 11, 2017

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 (August 11, 2017). Available at SSRN: https://ssrn.com/abstract=2745049

William Grieser (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Zack Liu

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

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