Product Market Strategy and Corporate Policies

Jakub Hajda and Boris Nikolov
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Jakub Hajda: University of Lausanne
Boris Nikolov: University of Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

No 21-02, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: How does product life cycle affect investment and financing? To answer this question, we structurally estimate a dynamic model where the firm chooses product portfolio characteristics that influence cash flow dynamics and shape corporate policies. In the model, the firm trades off higher profitability of newer products versus product introduction costs. Using disaggregated product-level data, we find that the product dimension is critical in quantitatively explaining cash flow dynamics, investment and financing, and has materially important valuation effects. In particular, we show that product introductions and capital investment act as complements and that product dynamics induce stronger precautionary savings motives. Our estimates reveal that the product life cycle effect is more pronounced for firms with smaller product portfolios, supplying less unique products, and competing more intensely.

Keywords: Product market strategy; product life cycle; investment; capital structure; structural estimation (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2021-01
New Economics Papers: this item is included in nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2102

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