Abstract

https://ssrn.com/abstract=2826142
 


 



Competition and Capital Structure


Anisha Nyatee


University of Rochester, Simon Business School

February 1, 2017


Abstract:     
Manufacturing firms manage their capital structure policy differently in response to domestic and international competition. Competition captures the uncertainty arising from the firm's competitive environment. A rise in uncertainty raises the demand for crash proof liquidity. An asset seizes to be liquid when it suffers a capital loss. This creates a wedge between the current and the collateral value of assets. For firms operating in a competitive domestic environment the wedge between the current and the collateral value of assets is low due to more easily redeployable assets. Thus, firms in these industries have higher leverage. Firms operating in import intensive industries have assets that are less easily redeployable. Thus the wedge between the current and the collateral value of assets is large making assets less desirable as collateral. Therefore, firms operating in these industries have lower leverage.

Number of Pages in PDF File: 47

Keywords: Product market competition, financing policies, capital structure, asset redeployability

JEL Classification: G15, G32, G38


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Date posted: August 22, 2016 ; Last revised: February 15, 2017

Suggested Citation

Nyatee, Anisha, Competition and Capital Structure (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2826142 or http://dx.doi.org/10.2139/ssrn.2826142

Contact Information

Anisha Nyatee (Contact Author)
University of Rochester, Simon Business School ( email )
Rochester, NY
United States
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