Document Type
Article
Publication Date
1995
Abstract
This paper presents empirical evidence on the interaction of capital structure decisions and product market behavior. We examine when firms recapitalize and increase the proportion of debt in their capital structure. The evidence in this paper shows that firms with low productivity plants in highly concentrated industries are more likely to recapitalize and increase debt financing. This finding suggests that debt plays a role in highly concentrated industries where agency costs are not significantly reduced by product market competition. Following the empirical evidence we introduce the "strategic investment" effects of debt and argue that this effect, in conjunction with agency costs, appears to fit the data.
Recommended Citation
Kovenock, Dan, and Gordon Phillips. "Capital structure and product-market rivalry: how do we reconcile theory and evidence?." The American Economic Review (1995): 403-408.
Peer Reviewed
1
Copyright
American Economic Association
Included in
Economic Theory Commons, Industrial Organization Commons, Organizational Behavior and Theory Commons
Comments
This article was originally published in The American Economic Review ,in 1995.