A Study On The Interaction Between Capital Structure And Product-Market Strategy

The fact that the firm's financial decision and the management strategy in product markethave long been studied in two isolated fields makes the failure of the two researches considerthe interactions between the capital structure and the strategy of the firm in product market,resulting in the difficulty of reasonably explaining the actual corporate behavior and evenopposite conclusions, due to the restraint of presuppositions.Thus, it not only has theory value but also has profound significance in practice toconnect the two together and analyze the interrelations between the competition strategy ofproduct market and the company's capital structure based on current researches abroad and athome, as it offers enterprises a scientific reference to evaluate and optimize capital structure.In incomplete market competition, researches on relations between capital structure andproduct market competition have been got the academic attentions except of the research ofMM irrelevance theorem. In Chapter two, this dissertation gives a relatively comprehensivesurvey of the main previous researches in this field. The Chapter 3 provides a new model ofthe influence of liability on investment in Cournot oligopoly competition on the basis ofbankruptcy cost, and explores the changes of the company's and its rivals' investmentdecisions after the changes of financial leverage. As the competition strategy of productmarket includes the competition of R&D and advertisement investment, this paper introducescorporate debt financing into the research of R&D investment competition to focus on thediscussion of the influence of changes of corporate debt level on R&D investment competitionand corporate value in order to compare with the above mentioned product model undernon-spillover effect, when the rival's investment spillover effect comes to different levels.Chapter 4 lays emphasis on a theoretical analysis of how maturity structure affects productmarket strategy—product's ads investment. On this basis, with the empirical test of financialdata of China's listed companies, the following conclusions are drawn: short term liabilitylevels and total liability levels have a positive correlation with ads investment scale, whilelong term liability has a negative correlation with ads investment scale. This paper analyzeshow the debt lever influences on the market strategies. The 5th Chapter focuses on theinfluence of product differentiation strategy on corporate debt level. Product difference level isused as the measure for product market force to see how the change of product difference levelaffects the choice of a corporate capital structure. A comparative research between Chun Lanshares that has a low debt rates (company code: 600854) and Shen KanKa that has a high debt rates is employed to see whether a corporation should conduct a conservative financial policyfrom the perspective of competition strategy. The previous research does not consider thepossible problem of the agency between shareholders and its agent, between shareholders andcreditors. However, the issue of the agent effect should not be neglected in the influence ofliability on corporate investment strategy. Thus Chapter six introduces the agent effect ofliability, and further discusses the double effects of liability—agent effect and strategic effecton product market strategy. This author points out that without the consideration of debtmaturity structure and debt financing constraint, and when a corporation unilaterally increasesits debt level, the problem of whether it will increase investment in product market dependsnot only on the shareholder's limited liability effect, but also on the speed of the operators'responsibility distortion caused by the change of debt level. When the maturity structure andconstraint of debt financing is taken into consideration, the company that uses short term debtas fixed assets to finance is faced with the finance constraint of creditors, so this company'smanager will probably control the outputs that leads the output in Phase one are exceeded theamount when there are no agency problems while its counterparts output reduced. On the basisof theoretical research in Chapter seven, empirical tests of annals data of China's listedcompanies from 2001 to 2005 are employed to have a better understanding of this field, inwhich most of the analysis of relations between capital structure and product market onlyadopt single equation model and ordinary least squares. While this paper makes researchsamples by the classification of competition degree in industry. It also conducts empiricalstudies on the interaction between corporate capital structure and investment behaviors(including ads investment and fixed assets investment) from the perspective of productcompetition and agency problem by the relevant assumptions that are based on the previoustheoretic model, by setting up a simultaneous equation model between capital structure andproduct market competition strategy and by adopting three phase least square estimation. Allthese empirical researches proved that the previous conclusions of correlation dose existbetween firm's capital structure and competitive strategy to some extent given by theoreticresearches. The 8th chapter is a brief summary of main points, conclusions, innovation,shortcomings and perspective of further researches.