The Structure Of Corporate Finance And Product Marketing Strategies - Theoretical Models And Empirical Analysis

Financial decision and product market decision are the two most important decisions in firms' developing process and these two decisions have close interactions. However, the strategy of the firm in product market and its firm's financial decision were studied in two isolated fields for a long time. Until 1980's, this separation in research has caused wide attention of many economists and they explored the interaction between these two decisions from various viewpoints.Based on the consideration of these factors including the various sources of uncertainty, the different types of product market competition and the corporate income taxes, my thesis analyze the interaction among the firm's financial decision, its product market strategy and the product market competition from different angles. In chapter three, I firstly analyses the influence of incomplete competition in product market on the firm's financial decisions. These financial decisions include the firm's financial ability in capital market, its choice of capital structure and its choice between public and private debt. The incomplete competitions in product market have two effects on the firm's financial ability. On one hand, product market competition decreases the firm's expected profit and thus lowers the firm's possibility of getting funds from capital market. This is the profit decreasing effect. On the other hand, the existence of competitive firm facilitates the investors' control of the firm's operating status and reduces the agency problem between the firm and investors. This is the benchmark effect. The influence of product market competition of firms' financial ability depends on the trade off between these two effects. The incomplete competition in product market will not only affect the financial ability in capital market, but also affect the firm's choice of capital structure and its choice between different sources of debt. This is just what I study in the following sections. In chapter four, I studied how the changes of firms' debt level affect the product market competition. Output strategy and pricing strategy are firms' most important strategies in product market, so I analyses the effect of changes in debt level on product market competition while firms compete with output and price separately in product market.Based on the analysis in chapter three and four, I tried to set up a general theoretic framework in chapter five to explore the interaction between the firm's capital structure and its product market decision. In this framework, I don't distinguish the type of product market competition and the sources of uncertainty. In order to further my research, I conduct empirical test using the annals data of Chinese listed companies from 1999 to 2002. I classified the listed companies according to the "Industrial Classification Guidance of Listed companies" which is issued by the CSRC. Based on this classification, I chose some industries and corporations in terms of certain principles as my sample. While there are many ways to measure firms' capital structure and their product market decision, proxies that tend to be common within the empirical capital structure and industrial organization literature are used in my study. These include the following: debt, long-term debt, sales turnover, the extent of product market competition, firms' size, profit, demand uncertainty, cast uncertainty and so on. The interaction between firms' capital structure and product market decisions has been analyzed by using Independent Samples t-test, Discriminant Analysis and Ordinary Least Square regressions. These empirical studies proved my previous theoretic conclusions to some extent.The research on the interaction between firms' financial decisions and their product market strategies are still in the beginning. I wish that my research can provide not only some fresh thoughts in this field but also certain theoretical guidance for firms' financial and product market decisions in practice.