Capital Sturcture And Product Market Competition

The emergence of capital structure and product market competition challenged traditional finance theory. Since Brander and Lewis began their research in 1986, there have been three major reviews , such as Debt making firm aggressive , Debt making firm collusive and Predation reviews.The Cournot equilibrium model which is a duopoly game is estimated. The result shows a statistically significant and positive relationship between debt-equity ratio and product market competition. When firms face a variable reflecting variation in demand or costs, there is limited liability effect on leverage. Based on Chinese listed firms, TTEST, Wilcoxon Two-Sample Test and Two-stage least squares (2SLS) regression are estimated. Results from all evidence also show that decision to issue debt has a positive effect on product market competition.