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Product market competition and corporate investment: Evidence from China

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  • Jiang, Fuxiu
  • Kim, Kenneth A.
  • Nofsinger, John R.
  • Zhu, Bing

Abstract

We find a positive relation between product market competition and corporate investment using a sample of Chinese manufacturing firms during 1999–2010. A quasi-natural experiment and change regressions yield consistent evidence. We postulate that China's high and predictable growth rate, as it transitions from a developing economy to a developed economy, is what drives the positive relation between competition and investment. We directly test and provide support for this growth-oriented explanation. We also find that high investment under high competition is a value-enhancing proposition for firms. Finally, we test whether some firm types are more likely to invest under high competition in a growing economy, and we find that firms with high predation risk and firms that are industry leaders invest more.

Suggested Citation

  • Jiang, Fuxiu & Kim, Kenneth A. & Nofsinger, John R. & Zhu, Bing, 2015. "Product market competition and corporate investment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 196-210.
    • Handle: RePEc:eee:corfin:v:35:y:2015:i:c:p:196-210
    DOI: 10.1016/j.jcorpfin.2015.09.004
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    More about this item

    Keywords

    Product market competition; Corporate investment; China;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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