Product Market Competition and Financial Structure—Evidence from a textual analysis of Chinese listed firms

Abstract

Based on textual analysis of listed firms' annual reports, we measured the extent of product market competition and studied how product market competition affects firms’ financial structures. We find that as a firm’s product market competition becomes fiercer, the firm tends to rely less on debt financing, especially short-term debt financing. In addition, we find that the effect of product market competition on financial structure only works in non-state-owned firms (Non-SOEs). Overall, this study contributes to the literature that discusses product market competition’s impact on financial structure. Furthermore, our research findings provide some evidence about the channel through which product market competition affects firms’ financing choices.

Keywords: Product Market Competition, Financial Structure, Textual Analysis