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The Effect of Product Market Competition on Capital Structure: Empirical Evidence from the Newspaper Industry

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Author Info
Ernesto Schargrodsky

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Abstract

This paper analyzes whether the extent of product market competition that a firm faces affects its capital structure. We study the effect of competition on leverage for firms acting in the US newspaper industry. Potential endogeneity between market structure and capital structure is addressed by exploiting the exogenous development of other mass media to instrument for the decline in the number of cities with competing newspapers. The results suggest that oligopolies have higher debt ratios than monopolies, controlling for other determinants of leverage. We also study the effect of capital structure on prices. For oligopolies, debt ratios show a significant and positive effect on advertising rates. The effect is not significant for monopolies.

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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-042002.pdf
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Publisher Info
Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number veintiocho.

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Length: 52 pages
Date of creation: 22 Feb 2002
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Handle: RePEc:udt:wpbsdt:veintiocho

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    Other versions:
  2. Chevalier, Judith A, 1995. " Do LBO Supermarkets Charge More? An Empirical Analysis of the Effects of LBOs on Supermarket Pricing," Journal of Finance, American Finance Association, vol. 50(4), pages 1095-1112, September. [Downloadable!] (restricted)
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    Other versions:
  6. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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    Other versions:
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