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Corporate equity ownership, investment, and product market relationships

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  • Clayton, Matthew J.
  • Jorgensen, Bjorn N.

Abstract

This paper examines the effect of corporate equity ownership on investment when firms have product market relationships. Firms have incentives to hold long equity positions when their products are complements. These equity positions induce the firms to increase their real investment expenditures. In contrast, firms have incentives to hold short equity positions when their products are substitutes. These short positions commit the firms to a more aggressive product market stance, and also result in increased real investment expenditures. Our model offers an explanation for the empirical relationship between the establishment of corporate equity stakes and increased investment spending documented by Allen and Phillips (2000).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 17 (2011)
Issue (Month): 5 ()
Pages: 1377-1388

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Handle: RePEc:eee:corfin:v:17:y:2011:i:5:p:1377-1388

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Web page: http://www.elsevier.com/locate/jcorpfin

Related research

Keywords: Corporate equity holdings; Investments; Strategic interactions;

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Cited by:
  1. Fee, C. Edward & Hadlock, Charles J. & Pierce, Joshua R., 2012. "What happens in acquisitions?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 584-597.

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