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Corporate financing and product market competition: evidence from firm-level data in Japan

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  • Takanori Tanaka

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    (Institute of Social and Economic Research, Osaka University)

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    Abstract

    This paper investigates the link between external financing and product market competition by focusing on different maturity structures. Using firm-level data for Japanese manufacturing firms over the period 1990-1995, we find that long-term loans enable firms to compete aggressively at a level below profit maximization. By contrast, short-term loans are not related to product market competition. Our results suggest that long-term loans play an important role in investment in market share for long-term profits through lowering prices.

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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P127.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 30 (2010)
    Issue (Month): 2 ()
    Pages: 1373-1383

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    Handle: RePEc:ebl:ecbull:eb-09-00440

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    Related research

    Keywords: debt financing; price-cost margin;

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    1. Chevalier, Judith A, 1995. "Capital Structure and Product-Market Competition: Empirical Evidence from the Supermarket Industry," American Economic Review, American Economic Association, vol. 85(3), pages 415-35, June.
    2. Weinstein, D.E. & Yafeh, Y., 1993. "Japan's Corporate Groups: Collusive or Competitive? An Empirical Investigation of Keiretsu Behavior," Harvard Institute of Economic Research Working Papers 1623, Harvard - Institute of Economic Research.
    3. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September.
    4. Michael E. Porter & Mariko Sakakibara, 2004. "Competition in Japan," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 27-50, Winter.
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    6. Phillips, Gordon M., 1995. "Increased debt and industry product markets An empirical analysis," Journal of Financial Economics, Elsevier, vol. 37(2), pages 189-238, February.
    7. Chevalier, Judith A, 1995. " Do LBO Supermarkets Charge More? An Empirical Analysis of the Effects of LBOs on Supermarket Pricing," Journal of Finance, American Finance Association, vol. 50(4), pages 1095-1112, September.
    8. Erol, Turan, 2005. "Corporate debt and output pricing in developing countries: Industry-level evidence from Turkey," Journal of Development Economics, Elsevier, vol. 76(2), pages 503-520, April.
    9. Marcus Asplund & Rickard Eriksson & Niklas Strand, 2005. "Prices, Margins and Liquidity Constraints: Swedish Newspapers, 1990-1992," Economica, London School of Economics and Political Science, vol. 72(286), pages 349-359, 05.
    10. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
    11. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
    12. Erol, Turan, 2003. "Capital structure and output pricing in a developing country," Economics Letters, Elsevier, vol. 78(1), pages 109-115, January.
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