Product market competition and debt choice

Boubaker, Sabri; Saffar, Walid; Sassi, Syrine

doi:10.1016/j.jcorpfin.2018.01.007

Cited by 146 publications

(80 citation statements)

References 63 publications

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“…In contrast, Boubaker, Saffar, and Sassi (2018) find that firms operating in more competitive markets rely more on public debt financing and less on bank debt financing. They posit that product market competition serves as an external governance mechanism.…”

Section: Hypothesis Developmentmentioning

confidence: 67%

Corporate Bonds and Product Market Competition

Platt

2020

J of Financial Research

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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.

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Section: Hypothesis Developmentmentioning

confidence: 67%

Corporate Bonds and Product Market Competition

Platt

2020

J of Financial Research

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“…Furthermore, our study provides more insights into recent developments in the literature that focus on the effectiveness of the disciplinary role of competition in substituting for other disciplinary mechanisms, such as the market for corporate control (Giroud and Mueller ), the passage of the Sarbanes–Oxley Act (Chhaochharia et al ), and bank debt monitoring (Boubaker, Saffar, and Sassi ), among others. Our article adds to this literature in that it attempts to broaden our understanding of the disciplinary effect of competition by highlighting its role in improving investors’ expectations reflected in the required rate of return.…”

Section: Introductionmentioning

confidence: 92%

External Governance and the Cost of Equity Financing

Sassi

Saadi

Boubaker

et al. 2019

J of Financial Research

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We examine whether and how competitive pressure in the product market influences the cost of equity capital. Using a large panel of U.S. public firms, we find that intensification of product market competition results in lower equity financing costs. Our results are statistically significant and economically sizable. In line with the view of the disciplinary role of product market competition, we show that corporate governance, payout policy, and investment policy are channels through which competitive pressure influences the cost of equity capital. JEL Classification: G18, G32"If we will not endure a king as political power, we should not endure a king over the production, transportation and sale of any of the necessaries of life." Senator John Sherman, author of the Antitrust Act of 1890We acknowledge helpful comments from

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“…The basic logic is that firms refrain from disclosing inside information to direct rivals to maintain their strategic advantages (Verrecchia and Weber 2006;Dedman and Lennox 2009). Boubaker et al (2018) argue that any private information disclosed to the public by the firms would be well perceived by the competitors and strategically used at the expense of their competitive positions. In another perspective, market competition unintentionally instigates firms to make alterations to their financial statements in order to mislead the public about the firms' core competencies (Bagnoli and Watts 2010).…”

Section: Product Market Competition and Capital Structurementioning

confidence: 99%

Zero leverage and product market competition

Chu

Pham

2021

SN Bus Econ

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The paper examines how product market competition can explain why some firms choose to maintain absolutely zero debt in their capital structure despite the clear advantages of debt financing. A wide range of financial theories such as the financial flexibility or underinvestment hypothesis has been put forward to explain the zero-leverage phenomenon. Product market competition plays a crucial role in formulating corporate decisions in private firms but its relationship with the zero-debt holding behavior of private firms is still an underexplored issue in finance research. Results from this study show that product market competition has a significantly positive influence on the zero-leverage behavior of firms but only to certain point. Importantly, the connection between product market competition and zero-leverage policy has been consistently significant across industries and different periods of time. The method used in this paper is the logistic regression, controlling for all the defining characteristics of the firms that reportedly cause them to eschew from debt financing.

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Product market competition and debt choice

Cited by 146 publications

References 63 publications

Corporate Bonds and Product Market Competition

Corporate Bonds and Product Market Competition

External Governance and the Cost of Equity Financing

Zero leverage and product market competition

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