Product market competition and debt choice
Sabri Boubaker (),
Walid Saffar and
Journal of Corporate Finance, 2018, vol. 49, issue C, 204-224
Motivated by prior research on the informational and monitoring role of product market competition, we examine how competitive pressure affects firms' choice between bank debt and public debt. Using a sample of 3675 U.S. firms over the period 2001–2013, we find that competitive pressure from the product market leads firms to rely less on bank debt financing. In a natural experiment setting, we also find that there is a significant decrease in firm reliance on bank debt after large import tariff reductions. In additional analyses, we show that the effect of competitive pressure on debt choice is more pronounced for firms with greater exposure to competition, higher financial constraints, and weaker governance practices. Moreover, we find that product market competition is associated with long-term maturity debt. Taken together, our study generates the important insight that external governance pressure from the product market acts as an alternate governance mechanism for bank debt monitoring.
Keywords: Product market competition; Import tariffs; Debt structure; Corporate governance (search for similar items in EconPapers)
JEL-codes: G18 G21 G32 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:49:y:2018:i:c:p:204-224
Access Statistics for this article
Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter
More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().