The Impact of Market Power and Financial Flexibility on Corporate Investment Policy

Philip T. Fliers

No 2024/07, QBS Working Paper Series from Queen's University Belfast, Queen's Business School

Abstract: This study explores how market power and financial flexibility shape corporate investment policies among U.S. large and mature corporations, by estimating firm-specific, time-varying investment-to-added-value sensitivities. We find that firms with market power exhibit lower investment sensitivities, and this effect is more pronounced for the most financially flexible firms. We show that the firm's debt capacity is an important moderator in the relationship between market power and investment sensitivities. Our findings support theoretical predictions that market power and financial flexibility jointly influence investment decisions. The implication is that a lack of competition impedes corporate investments. For investors, these findings highlight the need to monitor both the competitive landscape and financial flexibility of firms in their portfolios.

Keywords: Investments; market power; financial flexibility; added-value; debt capacity (search for similar items in EconPapers)
JEL-codes: D40 G31 G32 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-cfn, nep-com, nep-fle and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:qmsrps:202407

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