| 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. |
