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Product Market Strategy and Corporate Policies

Author

Listed:
  • Jakub Hajda

    (University of Lausanne)

  • Boris Nikolov

    (University of Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI))

Abstract

How does product life cycle affect investment and financing? To answer this question, we structurally estimate a dynamic model where the firm chooses product portfolio characteristics that influence cash flow dynamics and shape corporate policies. In the model, the firm trades off higher profitability of newer products versus product introduction costs. Using disaggregated product-level data, we find that the product dimension is critical in quantitatively explaining cash flow dynamics, investment and financing, and has materially important valuation effects. In particular, we show that product introductions and capital investment act as complements and that product dynamics induce stronger precautionary savings motives. Our estimates reveal that the product life cycle effect is more pronounced for firms with smaller product portfolios, supplying less unique products, and competing more intensely.

Suggested Citation

  • Jakub Hajda & Boris Nikolov, 2021. "Product Market Strategy and Corporate Policies," Swiss Finance Institute Research Paper Series 21-02, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2102
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    More about this item

    Keywords

    Product market strategy; product life cycle; investment; capital structure; structural estimation;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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