Product market competition and corporate investment: Evidence from China

Fuxiu Jiang, Kenneth Kim, John R. Nofsinger and Bing Zhu

Journal of Corporate Finance, 2015, vol. 35, issue C, 196-210

Abstract: We find a positive relation between product market competition and corporate investment using a sample of Chinese manufacturing firms during 1999–2010. A quasi-natural experiment and change regressions yield consistent evidence. We postulate that China's high and predictable growth rate, as it transitions from a developing economy to a developed economy, is what drives the positive relation between competition and investment. We directly test and provide support for this growth-oriented explanation. We also find that high investment under high competition is a value-enhancing proposition for firms. Finally, we test whether some firm types are more likely to invest under high competition in a growing economy, and we find that firms with high predation risk and firms that are industry leaders invest more.

Keywords: Product market competition; Corporate investment; China (search for similar items in EconPapers)
JEL-codes: G31 G34 L10 L60 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:35:y:2015:i:c:p:196-210

DOI: 10.1016/j.jcorpfin.2015.09.004

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