Corporate Bonds and Product Market Competition

Abstract

I examine the effect of product market competition on the yield spread of corporate bonds. I find that firms that face more competitive threats also face a higher cost of corporate bond debt. After controlling for common bond‐level, firm‐level, and macroeconomic variables, my results show that bondholders of firms that are subject to increased competition demand significantly higher credit spreads than holders of otherwise similar bonds. Furthermore, this effect is more pronounced for firms that have assets that are difficult to redeploy. Overall, my findings provide evidence that competitive threats are being reflected in corporate debt prices.

Competitive pressure and firm investment efficiency: Evidence from corporate employment decisions

“…We do not include firm‐fixed effects in our baseline model specification, as firm‐fixed‐effects regressions may fail to detect relationships in the data when the explanatory variable is persistent (e.g., Chi & Su, 2016; Hoberg et al, 2014; Kjenstad et al, 2018; Platt, 2020). Indeed, our independent variable (FLUIDITY) varies little over time for a given firm.…”

“…Hoberg et al (2014) provide evidence that firms are likely to remain in the same fluidity quintile over the 1‐, 3‐ and 6‐year horizons. The persistence of competition over time is supported by many studies investigating the impact of competitive pressure on firm‐level outcomes, such as payout decisions (Hoberg et al, 2014), cash holding decisions (Chi & Su, 2016), financing decisions (Kjenstad et al, 2018) and cost of debt (Platt, 2020). In unreported analysis, we provide further empirical evidence of the persistence of FLUIDITY by performing a regression of FLUIDITY on lagged FLUIDITY while controlling for year‐ and industry‐fixed effects.…”

Corporate social responsibility and firm market performance: the role of product market competition and firm life cycle

“…However, profit can be lower in highly competitive product markets which may restrict CSR investment, leading to lower firm performance (Sheikh, 2018). Intense competition may generate uncertainty of the sustainability about businesses due to the fiercely competitive environment may impact corporate cash flow, profit margin (Balakrishnan and Cohen, 2011;Platt, 2020;Schmidt, 1997) and the flexibility to cut costs (Schmidt, 1997). Thus, we anticipate a negative impact of product market competition on the relationship between CSR engagement and firm performance.…”

“…This attracts economists and public attention to the significant changes in the complete configuration of industries (Valta, 2012). Several parties are more sensitive to the competitive position of a firm as competition threats influence the firm's financial policies (Platt, 2020). Although many studies have been conducted to explore the empirical link between CSR and firm performance, very little is known about how the expected benefits generated from CSR engagement towards corporate financial performance are affected by the level of product market competition.…”

Crowdfunding and bank financing: substitutes or complements?

“…Chod and Lyandres (2021) argue that initial coin offerings or ICO (similar to the spirit of reward-based crowdfunding because the firm sells tokens during ICO and the holders of tokens can use them to purchase firm products) can be used by high-quality entrepreneurs. 9 See also Chakraborty and Swinney 2019.10 A recent example isPlatt (2020) that studies interactions between product strategy and corporate bonds spreads.…”