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Market pressure and cost of equity: Revisited

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  • Amairi, Haifa
  • Gallali, Mohamed Imen
  • Sassi, Syrine

Abstract

Motivated by the inconclusive evidence on the consequences of industry dynamics and competitive pressure, this study examines the relation between product market competition and cost of equity financing, by considering non-linear effects. Using a large sample of US firms over the 1997–2017 period, we provide evidence of a U-shape non-linear relation between product market competition and cost of equity, implying that this relation depends on the existing intensity of competitive pressure. Our finding suggests that the opposing roles of competition i.e. the disciplinary role and risk-increasing role, can coexist and are not necessarily mutually exclusive.

Suggested Citation

  • Amairi, Haifa & Gallali, Mohamed Imen & Sassi, Syrine, 2022. "Market pressure and cost of equity: Revisited," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000691
    DOI: 10.1016/j.frl.2022.102749
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    More about this item

    Keywords

    Product market competition; Cost of equity capital; Non-linear relationship;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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