The strategic use of debt reconsidered
AbstractWe consider a two-stage differentiated goods duopoly model with demand uncertainty linking firms' capital structure choice to their output market decisions. Using a numerical analysis, we study how the equilibrium of the model is affected by demand volatility and the substitutability between products. In doing so, we correct a mistake in earlier papers in this literature. Most importantly, we find that the equilibrium debt level decreases as demand becomes more volatile.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 26 (2008)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/inca/505551
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