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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26973
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| Title: | Debt, Investment, and Product Market Competition |
| Authors: | Clayton, Matthew J. |
| Issue Date: | Dec-1996 |
| Series/Report no.: | FIN-96-021 |
| 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. The theoretical papers in this literature addresses all
three of these strategic decisions, however, they only examine at most
two of these decisions simultaneously and hence have been unable to
fully explain the empirical finding. This paper develops a model which
examines all three decisions and shows that debt and investment can be
strategic substitutes in a model where firms rationally take on debt.
Furthermore it is demonstrated that when firms compete in prices in the
product market, an increase in debt leads to lower investment and higher prices. |
| URI: | http://hdl.handle.net/2451/26973 |
| Appears in Collections: | Finance Working Papers
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