Market pressure and cost of equity: Revisited

Haifa Amairi, Mohamed Gallali and Syrine Sassi

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: Motivated by the inconclusive evidence on the consequences of industry dynamics and competitive pressure, this study examines the relation between product market competition and cost of equity financing, by considering non-linear effects. Using a large sample of US firms over the 1997–2017 period, we provide evidence of a U-shape non-linear relation between product market competition and cost of equity, implying that this relation depends on the existing intensity of competitive pressure. Our finding suggests that the opposing roles of competition i.e. the disciplinary role and risk-increasing role, can coexist and are not necessarily mutually exclusive.

Keywords: Product market competition; Cost of equity capital; Non-linear relationship (search for similar items in EconPapers)
JEL-codes: G18 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000691

DOI: 10.1016/j.frl.2022.102749

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