| The relationship of financing constraints,capital structure and product-market competition, involves two unrelated academic areas,which are Corporate Finance and Industrial Organization. All along, the company’s capital structure decisions and product-markets strategies were caried out in this two different areas. Until the1980s, then the situation of division in the study aroused the widespread concern of the economists. They began to study the relationship between the company’s capital structure and product-market competition from different perspectives.Their researches showed that the company’s capital structure decisions and product-market competition strategies are the two most important decisions in the process of the development of the company, and there is a close correlationship between these two decisions. So far,studies on the relationship between the company’s capital structure and product-market competition have not formed a unified theoretical framework, and the relationship between capital structure and product-market competition hasn’t come to a consistent understanding,either.The scholars started from different assumptions get two different points of view:one is that the capital structure can promote the product-market competition, which is mainly represented by Brander and Lewis; the other is that weakenedthe capital structure can weaken the product-market competition, which is mainly represented by Bolton and Scharfstein. The existing researches in China focused on the reaction of the capital structure and product-market competition under the impact of the macroeconomic environment, the degree of competition in the industry, and other external factors, where there was little research focused on the effect of the company’s financing constraints. Besides,they selected the sample data mainly from the listed company as a whole or a relatively mature industry,such as manufacturing industry, while little research was put on China’s real estate industry. However, due to the significant difference of capital structure characteristics in different industries, it’s necessary to study the real estate industry seperately. If we study the relationship between capital structure and product-market competition starting from the level of the corporate financing constraints of China’s real estate industry, it can be believed that we are able to provide new ideas and theoretical basis for the capital structure decisions and product-market strategies of China’s real estate industry.In this paper we first discuss the relationship of financing constraints,capital structure and product-market competition based on the limited liability effect and predator effect. And then we study correlationship between the company’s capital structure and product-market competition on consider that we don’t conside the financing constraints of the sample companies or we distinguish the high financing constrained firms and low financing constrained firms respectively.And then we select the Annual Report data of the listed companies in China’s real estate industry from the year2005to2010to test the above theoretical assumptions and models. We study the relationship between the capital structure and product-market competition of the sample companies under different financing constraints respectively by using the method of the multivariate linear regression analysis,and we amend the first side of the multiple regression model of higher financing constrained companies for the quadratic regression model, which is added to the aforementioned liner relations. The study shows that the capital structure and product-market competition of the low financing constrainted listed real estate companies which are larger than the industry average in size and non-state-controlled present a significant positive linear correlationship.Besides, the capital structure and product-market competition of the high financing constrainted listed real estate companies which are smaller than the industry average in size and state-controlled show the inverted "U"-type relationship, which means that these companies exist a critical value of asset-liability ratio.When the company’s asset-liability ratio is below the critical value, an increase in debts is helpful in increasing its market share. On the contrary, when the company’s balance sheet is higher than the critical value, increasing the scale of debts will lead to the company’s market share plundered. And it’s different from the significant negative linear correlationship of the capital structure and product market competition showing in higher financing constrained companies of other industries which other scholars found.In short, the limited liability effect theory and the predatory effect theory have certain degree of applicability in the real estate industry in China.Compared to the low financing constrained real estate listed companies, listed real estate companies facing higher financing constraints might be more sensitive to the changes of their capital structures in their product-market performances,and when their asset-liability ratios reach to a certain level, an increase in the scale of debts will lead to the market share of the companies plundered. |
