Product market strategy and corporate policies

Jakub Hajda and Boris Nikolov

Journal of Financial Economics, 2022, vol. 146, issue 3, 932-964

Abstract: We examine how product life cycle affects investment and financing by estimating an industry equilibrium model that embeds product portfolio characteristics. In the model, firms trade off higher profitability of newer products versus product introduction costs. Using product-level data, we find that the product dimension is critical in quantitatively explaining cash flow dynamics, corporate policies, and industry structure. We show that product introductions and capital investment are complements and that product dynamics incentivize preserving more debt capacity. Our estimates reveal that product life cycle is more pronounced for firms with smaller and more concentrated product portfolios as well as those with high product variety.

Keywords: Product market strategy; Product life cycle; Investment; Capital structure; Structural estimation (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:3:p:932-964

DOI: 10.1016/j.jfineco.2022.09.003

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