Unraveling the Impact of Product Market Competition and Earnings Volatility on Zero-Leverage Policies

Imed Chkir (), Alireza Rahimzadeh and Syrine Sassi
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Imed Chkir: Telfer School of Management, University of Ottawa, Ottawa, ON K1N 6N5, Canada
Alireza Rahimzadeh: Telfer School of Management, University of Ottawa, Ottawa, ON K1N 6N5, Canada
Syrine Sassi: Telfer School of Management, University of Ottawa, Ottawa, ON K1N 6N5, Canada

JRFM, 2025, vol. 18, issue 2, 1-28

Abstract: This paper investigates the impact of product market competition (PMC) on firms’ adoption of zero-leverage (ZL) strategies and examines whether this relationship is influenced by earnings volatility. Using data from 1989 to 2019, we analyze the PMC and ZL behavior of firms using logistic regression. Our results indicate that as PMC intensifies, firms are more likely to adopt ZL policies. This effect is stronger in firms with higher earnings volatility, suggesting a significant interaction between PMC and earnings volatility in shaping capital structure decisions. This study extends existing research by highlighting the role of earnings volatility in strengthening the relationship between PMC and ZL behavior, offering new insights into the dynamics between market competition, financial decisions, and firm risk.

Keywords: product market competition (PMC); zero-leverage (ZL) firms; earnings volatility; risk; capital structure (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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