Industrial Characteristics Output Market Competition And Public Firms' Capital Structure Choice

From the seminal paper of Brander and Lewis(1986), a whole strand of the literature has investigate the existence and the nature of interactions between firm's leverage and output market strategics. The following literature can be basically concentrated on three"seprated"aspects: namely the limited liability effect model, strategic predatory model and the effect of debt financing on firm's invest level.Following the path of Wanzenried(2003) , Povel and Raith(2004) and Campello(2006) et.al. and the recently new results of capital structure theory, and based on the analysis of the diffierent information structure among palyers and external debt financing game, I consider a extended(including production cost) two-stage diffierentiated goods duopoly model with demand uncertainty linking firm's financial leverage choice with their output market decisions in some industry-classification backgrounds(based on the criterion of traditional three industry-classification and the industry's regulation or not), namely I also examine the importance of a certain industry to firm-level financial and real decisions. By the CSMAR(2005) data system, I test the predictions of my model using indurtry-level data from a panel of 811 well-defined public companies over recent 5 years in our country. The empirical results prvides a strong support for our mdel. Some research findings contribute to understanding of the interactions among production market cometition, industry features and firm's financial leverage decisions. Our basic research findings and the main creative aspects are as follows:1. The extended model in this peper derived successfully the correlation between the varibles as the degree of product differentiationγ, demand shocks z_i, market sizeα, product costs C_i and external debt financing level or output market strategics. And the emperical results support the theory.2. According with abroad's corrent research results of this topic, the intensity indexes of output manrket competition(HHI,CS) have a certain effect on the listed companies'leverage(Total debt/assets) choice, and even in some industries, the results of examination appear significant. The industrial characterics siginificantly affect the interactions between the Chinese public firm's leverage and output market strategics.3. This paper firstly uses two new procies, namely MIL(median industry leverage) and MIG(median industry growth) as the measure indexes of the intensity in output manrket competition. The examining results are similar to foreign resaerch findings: the index MIL is correlated positively with firms'financial leverage decisions at 95% significant level; and the correlation of MIG is negative. The two measure indexes could be the important reference basis of our public companies'leverage decisionmaking.4. Most of the firm-specific factors that influncing firm's capital structure provides significant results that Similar to western models, but certain firm-specific factors, such as firm's size, profitability, growth opportunities and assets structure et.al. are conflict with the domestic artery evidence. The fact that the coexistence of positive or negative correlations in the interaction between index of the uniqueness of firm's product and fim's leverage perfectly support the prediction of my model,namely the nonmonotonic association between the degree of product differentiation and external debt financing level. These findings enrich the internal research work at some extent.5. This paper also finds that the diffierent industry-classifications play an important role on studying the interactions among output market competition,industry characterics and public firm's financial leverage decisions.