Financial Strength and Product Market Competition: Evidence from Asbestos Litigation

Hadlock, Charles J.; Sonti, Ramana

doi:10.2139/ssrn.1376267

Cited by 10 publications

(5 citation statements)

References 47 publications

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“…In this paper, we deal with Glazer's analysis and point out that his prediction that longterm debt causes firms to be more collusive in the initial periods of the planning horizon does not hold which is in line with Smith et al [21] and Hadlock and Sonti [12]. In particular, we prove that issuing debt (even if it is long term) always causes firms to be more aggressive in the product market.…”

Section: Introductionsupporting

confidence: 63%

“…Hadlock and Sonti [12] provide evidence that increases in fixed liabilities arising from asbestos litigation (which are debt-like claims in that they are senior to equity in the event of default) lead to more aggressive product market interactions. They argue that a deviation from collusive behavior may result in high current cash flows that could be immediately paid out to equity holders if the fixed claims are not immediately due and there are few contractual restrictions on cash distributions to equity holders.…”

Section: Introductionmentioning

confidence: 99%

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The Strategic Role of Dividends and Debt in Markets with Imperfect Competition

2018

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In a seminal paper Brander and Lewis (Am Econ Rev 76:956-970, 1986) show that oligopolistic firms with limited liability follow a more aggressive output strategy as their leverage increases. In a follow-up paper Glazer (J Econ Theory 62:428-443, 1994) points out that when debt is long term and rival firms choose their equilibrium quantities in two consecutive periods, they have an incentive to be more collusive in the first period than static oligopolists would be. In this paper we argue that the incentive to collude is driven by limited liability and the dividend policy of the firm. We find that increasing leverage causes firms in both periods to increase their output and hence to be more aggressive. Additionally, we find that it is always optimal to pay out profits immediately. Moreover, we show that the symmetric game admits multiple equilibria some of which cause firms to choose asymmetric product market strategies. Keywords Financial and product market interactions • Cournot competition • Debt • Payout policy • Multiple equilibria Engelbert J. Dockner-deceased. The views expressed are not necessarily those of the OeNB.

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Section: Introductionsupporting

confidence: 63%

Section: Introductionmentioning

confidence: 99%

The Strategic Role of Dividends and Debt in Markets with Imperfect Competition

2018

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“…As our main proxy for domestic competition we employ the Herfindahl index. This measure remains the widest used proxy for competition in the literature (Baghdasaryan & La Cour, ; Cherchye & Verriest, ; Clougherty & Zhang, ; Giroud & Mueller, ; Hadlock & Sonti, ; Kostevc, ; Valta, ; Xu, ). The Herfindahl index is an indicator of market concentration of firms and, therefore, measures the size of a firm relative to its industry or market.…”

Section: Methodsmentioning

confidence: 99%

Reaching up and reaching out: The impact of competition on firms’ productivity and export decisions

Yan

Hynes

2018

Pacific Economic Review

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Using firm‐level data from 139 countries, this paper investigates the effect of competition in both the domestic and foreign markets on firm productivity and export decisions. Applying a sample selection endogenous treatment (SSET) Poisson model that tackles both the issue of endogenous sample selection and endogenous treatment at the same time, we document robust evidence that strong competition in the domestic market propels firms to be more productive, and decreasing domestic competition increases firms’ propensity to export. However, firms’ export intensity (i.e. how much they export) is not directly influenced by competition in the domestic market. Moreover, lower competition in the foreign market increases the propensity of domestic firms to export, enlarging the set of exporting firms to include firms with relatively smaller export amounts.

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“…The more cash inflows from operating activities, new financing, and the earnings from investments entering the reservoir, and the lower cash outflows exit from the reservoir, the lower the bankruptcy likelihood. Hadlock and Sonti (2012) show that when firms increases their financial leverage, the market considers this expansion as negative news, which increases bankruptcy likelihood. Krüger (2015) argued that corporate social responsibility (CSR) could enhance managers' reputation from the pocket of the shareholders.…”

Section: Bankruptcymentioning

confidence: 99%

Intellectual capital, liquidity, and bankruptcy likelihood

Shahdadi

Rostamy

Sharif

et al. 2020

J Corp Accounting Finance

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This study investigates the impacts of intellectual capital on the liquidity of assets and stocks and the bankruptcy likelihood. Multivariate regression models with combined data used to test the hypotheses. Using a sample of 147 companies listed on the Tehran Stock Exchange during 2010-2017, the results indicate that intellectual capital has a positive effect on the liquidity of assets and the liquidity of stocks, and that it has an inverse relation with the bankruptcy likelihood. Moreover, we found that the liquidity of assets has a negative effect on the bankruptcy likelihood. However, the liquidity of stocks has no significant effect on the bankruptcy likelihood. In general, the findings of this study provide evidence of the effective role of intellectual capital in improving the liquidity of assets and the impacts of both the intellectual capital and the liquidity on reducing the bankruptcy likelihood. This study provides evidence of the prominent role of intellectual capital in the intelligent management of corporate liquidity and reducing the likelihood of bankruptcy.

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Financial Strength and Product Market Competition: Evidence from Asbestos Litigation

Cited by 10 publications

References 47 publications

The Strategic Role of Dividends and Debt in Markets with Imperfect Competition

The Strategic Role of Dividends and Debt in Markets with Imperfect Competition

Reaching up and reaching out: The impact of competition on firms’ productivity and export decisions

Intellectual capital, liquidity, and bankruptcy likelihood

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