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Pricing Strategy and Financial Policy

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  • Dasgupta, Sudipto
  • Titman, Sheridan

Abstract

Recent empirical evidence indicates that capital structure changes affect pricing strategies. In most cases, prices increase following the implementation of a leveraged buyout of a major firm in an industry, with the more leveraged firm in the industry charging higher prices on average. Notable exceptions exist, however, when the leverage increasing firm's rival is relatively unlevered. The first observation is consistent with a model where firms compete for market share on the basis of price. The second observation can be explained within the context of a Stackelberg model where the relatively unlevered rival acts as the Stackelberg price leader. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 11 (1998)
Issue (Month): 4 ()
Pages: 705-37

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Handle: RePEc:oup:rfinst:v:11:y:1998:i:4:p:705-37

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  12. Chong-en Bai & Shan Li, 1994. "Capital Structure and Product Market Strategy," Boston College Working Papers in Economics 279., Boston College Department of Economics.
  13. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
  14. Showalter, Dean M, 1995. "Oligopoly and Financial Structure: Comment," American Economic Review, American Economic Association, vol. 85(3), pages 647-53, June.
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