Product Market Competition and Corporate Investment: An Empirical Analysis
60 Pages Posted: 18 Jun 2018 Last revised: 26 Oct 2021
Date Written: October 25, 2021
Using both SIC-based and text-based measures of industry concentration, we show that firms operating in competitive industries invest significantly more in both physical capital and R&D relative to their peers in concentrated industries. Corrections for endogeneity, controlling for the competition from imports, and the presence of stronger corporate governance do not change the main findings. The results are consistent with the notion that the incentive to invest and innovate in order to survive and escape competition for firms in competitive industries is stronger than the corresponding incentive for firms in concentrated industries to preserve and enhance their existing monopoly rents.
Keywords: Corporate Investments, Industry Concentration, Competition, Corporate Governance, Herfindahl-Hirschman Index (HHI)
JEL Classification: G31, G3, G39
Suggested Citation: Suggested Citation