Product Market Strategy and Corporate Policies

86 Pages Posted: 12 Jul 2019 Last revised: 12 Jan 2021

See all articles by Jakub Hajda

Jakub Hajda

HEC Montreal - Department of Finance

Boris Nikolov

University of Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Date Written: December 23, 2020

Abstract

How does product life cycle affect investment and financing? To answer this question, we structurally estimate a dynamic model where the firm chooses product portfolio characteristics that influence cash flow dynamics and shape corporate policies. In the model, the firm trades off higher profitability of newer products versus product introduction costs. Using disaggregated product-level data, we find that the product dimension is critical in quantitatively explaining cash flow dynamics, investment and financing, and has materially important valuation effects. In particular, we show that product introductions and capital investment act as complements and that product dynamics induce stronger precautionary savings motives. Our estimates reveal that the product life cycle effect is more pronounced for firms with smaller product portfolios, supplying less unique products, and competing more intensely.

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

JEL Classification: G31, G32

Suggested Citation

Hajda, Jakub and Nikolov, Boris, Product Market Strategy and Corporate Policies (December 23, 2020). Swiss Finance Institute Research Paper No. 21-02, Available at SSRN: https://ssrn.com/abstract=3354748 or http://dx.doi.org/10.2139/ssrn.3354748

Jakub Hajda (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Boris Nikolov

University of Lausanne ( email )

Lausanne, CH-1015
Switzerland

Swiss Finance Institute ( email )

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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