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Capital Structure and Product Market Strategy

Chong-En Bai and Shan Li

Annals of Economics and Finance, 2000, vol. 1, issue 2, 381-400

Abstract: This paper develops a general framework to analyze the relationship between a firm's capital structure and its product market strategy and presents a taxonomy of whether debt makes a firm {\it tough} or {\it soft} in product market competition and how strategic considerations affect the leverage of a firm based on the nature of the firm's agency problem and the characteristics of the product market. We then offer a unified picture of the related literature and point out some unexplored linkages between capital structure and product market strategies. Finally, we discuss the empirical implications of our theoretical results.

Keywords: Capital structure; Agency; Oligopoly; Competition (search for similar items in EconPapers)
JEL-codes: G32 L13 (search for similar items in EconPapers)
Date: 2000
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