Corporate Investment and Innovation in the Presence of Competitor Constraints

The Review of Financial Studies (RFS), Forthcoming

71 Pages Posted: 26 Sep 2018 Last revised: 8 Nov 2018

See all articles by William Grieser

William Grieser

Texas Christian University

Zack Liu

University of Houston - Department of Finance

Date Written: November 5, 2018

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 opportunistic hiring when competitor constraints become more binding. In addition, firms shift their investment composition (product market and patent portfolios) to compete more aggressively with relatively constrained 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 we find similar effects.

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

Suggested Citation

Grieser, William and Liu, Zack, Corporate Investment and Innovation in the Presence of Competitor Constraints (November 5, 2018). The Review of Financial Studies (RFS), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2745049 or http://dx.doi.org/10.2139/ssrn.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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