Corporate equity ownership, investment, and product market relationships

Matthew J. Clayton and Bjørn Jørgensen

Journal of Corporate Finance, 2011, vol. 17, issue 5, 1377-1388

Abstract: This paper examines the effect of corporate equity ownership on investment when firms have product market relationships. Firms have incentives to hold long equity positions when their products are complements. These equity positions induce the firms to increase their real investment expenditures. In contrast, firms have incentives to hold short equity positions when their products are substitutes. These short positions commit the firms to a more aggressive product market stance, and also result in increased real investment expenditures. Our model offers an explanation for the empirical relationship between the establishment of corporate equity stakes and increased investment spending documented by Allen and Phillips (2000).

Keywords: Corporate equity holdings; Investments; Strategic interactions (search for similar items in EconPapers)
JEL-codes: D43 G31 G32 L13 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:17:y:2011:i:5:p:1377-1388

DOI: 10.1016/j.jcorpfin.2011.08.001

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