Predatory Pricing and the Value of Corporate Cash Holdings

46 Pages Posted: 17 Nov 2020

See all articles by Maria Lavrutich

Maria Lavrutich

Norwegian University of Science and Technology

Jacco Thijssen

University of York - The York Management School

Date Written: September 30, 2020

Abstract

We analyze the interaction between firms' payout policies and their decisions in product markets in a continuous-time stochastic game between two firms. One of these is financially constrained, whereas the other is not. Contrary to the standard literature we allow firms to choose production and payout strategies, and focus on the effect of predation incentives on both. We find that predation induces fewer dividend payouts. Furthermore, the liquidity position of the constrained firm has an economically significant effect on the production choices of both firms and, thus, on the evolution of profits, cash holdings and stock returns.

Keywords: Cash holdings, Dividends, Financial constraints, Competition, Predation

JEL Classification: D43, G33, G33, G35, L41

Suggested Citation

Lavrutich, Maria and Thijssen, Jacco, Predatory Pricing and the Value of Corporate Cash Holdings (September 30, 2020). Available at SSRN: https://ssrn.com/abstract=3695184 or http://dx.doi.org/10.2139/ssrn.3695184

Maria Lavrutich (Contact Author)

Norwegian University of Science and Technology ( email )

NO-7491 Trondheim
Norway

Jacco Thijssen

University of York - The York Management School ( email )

Sally Baldwin Buildings
Heslington
York, North Yorkshire YO10 5DD
United Kingdom

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