Product Market Strategy and Corporate Policies

64 Pages Posted: 12 Jul 2019

See all articles by Jakub Hajda

Jakub Hajda

University of Lausanne; Swiss Finance Institute

Date Written: June 10, 2019

Abstract

I study how product market strategy influences corporate investment and financing policy. Using data on firms' product portfolio structure, I show that product portfolio age is negatively related to firm value, investment and leverage, consistent with the product life cycle channel. An estimated dynamic model of firms' financing, investment, and product portfolio decisions shows that the negative relationships exist because capital investment and product introductions act as complements, leading to a stronger precautionary savings motive when the firm's product portfolio ages. The structural estimates imply large effects of the product life cycle channel, with firms acting as if new products were twice as profitable as old ones, and document that firms are more exposed to product-level economic forces when they supply fewer products and compete more intensely. Counterfactual analysis implies that alleviating product life cycle effects can increase firm value by up to 3.5%.

Keywords: Product market strategy, product life cycle, investment, capital structure, structural estimation

JEL Classification: G31, G32

Suggested Citation

Hajda, Jakub, Product Market Strategy and Corporate Policies (June 10, 2019). Available at SSRN: https://ssrn.com/abstract=3354748 or http://dx.doi.org/10.2139/ssrn.3354748

Jakub Hajda (Contact Author)

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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