Pharmaceutical Industry, Product Market Competition And Capital Structure Research

For a long time, the study on firms' product-market competition and capital structure decision are separated in two areas of industrial organization theory and corporate finance theory. The former related studies are based on the assumption of profit-maximizing to make competition strategy decision, and ignore the possible role of capital structure. While the latter based on shareholder value maximization argues that product market is given, and its role is only to generate an exogenous cash flow. However, the results of the two independent fields can't explain reality well. In 1986, Brander and Lewis published a paper named"Oligopoly and financial structure: The limited liability effect"which analyses the influence of company's capital structure for its behavior of product-market competition. The industrial organization theory and corporate finance theory have come together for the first time. Since then, the research of relationship between product-market competition and capital structure has become a focus of industrial economists and financial economists. Scholars make research on the relationship between product-market competition and capital structure from different perspectives and achieved rich results.The paper studies the relationship between firms'product-market competition and capital structure about china's pharmaceutical industry. In the article structure, the paper has made a very detailed overview as a theoretical guidance on the evolution of capital structure, especially the capital structure based on industrial organization theory, including the theoretical and empirical research results. Then, we explore the relationship between product-market competition and capital structure by introduction and discussion about the classic model of Blander and Lewis (1986). Secondly, the paper shows the relationship between product-market competition and capital structure from the empirical point of view according to the data of biopharmaceutical listed companies in Shanghai and Shenzhen Stock Exchange. Again, we probe the relationship between product-market competition and capital structure through the case of Zhejiang CONBA Pharmaceutical Co., Ltd. Finally, the paper presents the research findings and further research directions.