Research On Capital Structure And Product Market Competition

The research of capital structure and product market competition has got a rapid progress since the last half of 1980s. But both theoretical analyses and empirical tests in this area need to be enriched and perfected. In theory analyses, most of the models are limited to the effect of debt financing on product market competition, and simply hypothesize that all kinds of debts have same effect on product market competition. In empirical tests, there are very limited literatures, and the conclusions are at variance with the theoretical analyses. In addition, these researches generally consider only one side of their relationships, and neglect their bidirectional relationships.Because of these deficiencies, this paper combines capital structure theory and industrial organizing theory, and analyzes the bidirectional relationships between capital structure and product market competition theoretically and empirically with our coutry's listed companies'data. Firstly, this paper reviews the related literatures about capital structure and product market competition. Based on these foundations, this paper uses several game competition models to analyze the bidirectional relationships between debt level, debt source structure, debt term structure, ownership structure, and product market competition, and compares the effect differences of these factors affecting product market competition. And then, this paper uses simultaneous equations to test the above-mentioned theoretical conclusions by employing our coutry's listed companies'data. Based on the research, this paper gets the following conclusions:Firstly, different kinds of debts have different degree of effects on firms'product market competition intensities. From the point of view of debt source structure, commercial credit has a more serious negative effect on firms'product market competition intensity than bank loan. From the point of view of debt term structure, short-term debt has a more serious negative effect on firms'product market competition intensities than long-term debt.Secondly, ownership structure also has notable effects on firms'product market competition. Past research works on capital structure and product market competition often limited to debt financing, and without considering ownership structure. After researching on their relationships, I find that firms'ownership structure not only affects firms'product market competition itself, it also affects firms'product market competition further through affecting firms'debt. Thirdly, there are bidirectional relationships between capital structure and product market competition. Past research works generally consider only one side of their relationships, and neglect their bidirectional relationships. But both the theory analyses and the empirical tests in this paper find that they indeed have bidirectional relationships.Lastly, capital structure has different degree of effects on firms'product market competition intensities with different kinds of controlled shareholders. Past research works did not consider this side, but different kinds of controlled shareholders in fact affect firms'capital structure, and then affect firms'product market competition further. After researching on their relationships, I find that all kinds of debt financing have more negative effects on product market competition intensities for non-state controlled listed companies than for state controlled listed companies; and ownership concentration degree has positive effects on product market competition intensities for state controlled listed companies, but has negative effects on product market competition intensities for non-state controlled listed companies.