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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26869
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| Title: | Debt, Investment, and Product Market Competition |
| Authors: | Clayton, Matthew J. |
| Issue Date: | Jul-1997 |
| Series/Report no.: | FIN-98-021 |
| Abstract: | Recent empirical literature on the interaction between capital
structure, investment, and product market decisions suggests that debt
leads to lower investment expenditures and weaker product market
competition. Theoretical literature in this area has been unable to
fully explain this finding (perhaps because all theoretical papers look
only at two of the above decisions). This paper develops a model which
examines all three decisions and shows that debt and investment can be
substitutes in a model where firms rationally take on debt. Furthermore,
it is demonstrated that when firms compete with prices in the product
market, an increase in debt leads to lower investment and higher prices. |
| URI: | http://hdl.handle.net/2451/26869 |
| Appears in Collections: | Economics Working Papers
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