A Research On The Interaction Between Capital Structure And Product Market Competition

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, such financial economist, such as Brander and Lewis, Maksimovic, identified this problem, and then the interaction between financing decisions and product market competition has been the recent focus of financial economists and industrial economists. This paper examines the relationship between capital structure and product-market competition intensity.On the argumentation of this relation question, this text has summarized forefathers'achievements and views in this field, and found that they had serious theory difference. Some economists think that the debt makes product-market competition aggressive. The others consist that the debt makes product-market competition collusive. And the two contradiction points have been held out from some scholars'research. Which one is right?This paper tries to solve the problem and make clear the real relationship between capital structure and product-market competition intensity in our economy environment. Hopefully, this paper can put forward some valuable suggestions so that the firms in China can optimize their capital structure to meet the more and more competitive market.Therefore, based on Chinese listed firms, this paper shows that the interaction between capital structure and product-market competition intensity is positive, and the debt make product-market competition aggressive.