How Does Corporate Investment Respond to Increased Entry Threat?

Product market competition and corporate investment: Evidence from China

“…As such, we make a significant contribution to the literature on product market competition and corporate investment by identifying an environment (i.e., an economy experiencing high growth) where the relation is strongly positive. Our paper contrasts what Mello and Wang (2012), Autor et al (2013), and Frésard and Valta (2015) find happened in developed countries during this period. In a sense, our paper is "the other side of the coin" from their studies.…”

“…On one hand, the relation can be positive (e.g., firms may invest aggressively to drive out other firms), but on the other hand, the relation can be negative (e.g., firms may invest conservatively because profit opportunities become scarcer and uncertain). Recent empirical studies find that globalization can decrease corporate investment (notably, Mello and Wang, 2012;Autor et al, 2013;Frésard and Valta, 2015), implying a negative relation between competition and investment. However, these studies focus on how globalization affects U.S.…”

“…Autor et al (2013) andFrésard andValta (2015) find a negative relation between competition and investment in developed markets. They argue that industry leaders are more likely to invest less in the face of global competition because they have the luxury of not having to worry about global competition as much as industry followers do.…”

Corporate Liquidity Management: A Conceptual Framework and Survey

“…These authors present a model where financial constraints play a key role: Firms in more competitive industries have to hold more cash to survive, with this effect being more pronounced in the presence of financial constraints. Using empirical strategies that resemble Fresard (2010), Morellec, Nikolov & Zucchi (2014) show that high levels of industry competition are usually associated with more pronounced cash hoarding behavior by firms (see also Fresard & Valta 2013). The authors' work allows them to propose a partial, Industrial Organization-based explanation for the secular increase in cash holdings documented in Bates, Kahle & Stulz (2009), by showing that there is no such secular trend in concentrated industries.…”

CEO power, product market competition and the acquisition motive for going public

“…First, as competition increases managerial conservatism (Fresard and Valta, 2016), the intense rivalry may cause IPO firms to avoid riskier and potentially destabilising forms of investments such as acquisitions. Finally, research suggests that product market competition influences incentives to merge as well as the choice of acquisition targets (Hoberg and Phillips, 2010;Fresard and Valta, 2016). Under this view, competition is likely to lower the potential for CEOs to pursue empire-building acquisitions subsequent to going public.…”