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Strategic Responses of Incumbents to New Entry: The Effect of Ownership Structure, Capital Structure, and Focus

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  • Khanna, Naveen
  • Tice, Sheri
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    Abstract

    We examine how certain firm- and market-specific characteristics affect incumbent firms' responses to new entry into their local markets. Data comes from the discount department store industry where Wal-Mart entered a large number of markets in a short period of time. Consistent with existing research, larger and more profitable incumbents respond more aggressively to Wal-Mart's entry, while more highly levered incumbents respond less aggressively. Also, there is evidence that incumbent managers fight harder (possibly overinvest) when their job is at greater risk and high managerial ownership appears to reduce this agency problem. Incumbent firms behave differently in markets under attack by Wal-Mart than in markets not yet threatened, suggesting that some of the documented responses are specific to WalMart's entry. 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): 13 (2000)
    Issue (Month): 3 ()
    Pages: 749-79

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    Handle: RePEc:oup:rfinst:v:13:y:2000:i:3:p:749-79

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    Cited by:
    1. Neumark, David & Zhang, Junfu & Ciccarella, Stephen, 2007. "The Effects of Wal-Mart on Local Labor Markets," IZA Discussion Papers 2545, Institute for the Study of Labor (IZA).
    2. Bonanno, Alessandro & Lopez, Rigoberto A., 2009. "Is Wal-Mart a Monopsony? Evidence from Local Labor Markets," 2009 Conference, August 16-22, 2009, Beijing, China 51289, International Association of Agricultural Economists.
    3. Campello, Murillo, 2006. "Debt financing: Does it boost or hurt firm performance in product markets?," Journal of Financial Economics, Elsevier, vol. 82(1), pages 135-172, October.
    4. Povel, Paul & Raith, Michael, 2004. "Financial constraints and product market competition: ex ante vs. ex post incentives," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 917-949, September.
    5. Khanna, Naveen & Schroder, Mark, 2010. "Optimal debt contracts and product market competition with exit and entry," Journal of Economic Theory, Elsevier, vol. 145(1), pages 156-188, January.
    6. Alessandro Bonanno & Rigoberto A. Lopez, 2008. "Wal-Mart’s Monopsony Power in Local Labor Markets," Food Marketing Policy Center Research Reports 103, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    7. Natasha Agarwal & Chris Milner & Alejandro Riaño, . "Credit Constraints and FDI Spillovers in China," Discussion Papers 11/21, University of Nottingham, GEP.
    8. Larkin, Yelena, 2013. "Brand perception, cash flow stability, and financial policy," Journal of Financial Economics, Elsevier, vol. 110(1), pages 232-253.
    9. Valta, Philip, 2012. "Competition and the cost of debt," Journal of Financial Economics, Elsevier, vol. 105(3), pages 661-682.
    10. Douglas D. Evanoff & Evren Ors, 2002. "Local market consolidation and bank productive efficiency," Working Paper Series WP-02-25, Federal Reserve Bank of Chicago.
    11. Leach, J. Chris & Moyen, Nathalie & Yang, Jing, 2013. "On the strategic use of debt and capacity in rapidly expanding markets," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 332-344.
    12. Bonanno, Alessandro, 2008. "An Empirical Investigation of Wal-Mart’s Expansion into Food Retailing," Research Reports 149931, University of Connecticut, Food Marketing Policy Center.
    13. Kale, Jayant R. & Shahrur, Husayn, 2007. "Corporate capital structure and the characteristics of suppliers and customers," Journal of Financial Economics, Elsevier, vol. 83(2), pages 321-365, February.

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