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Product market competition and the value of corporate cash: Evidence from trade liberalization

  • Alimov, Azizjon
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    This paper uses the 1989 Canada–U.S. Free Trade Agreement as a source of exogenous variation in product markets to establish the impact of increased competition on the market valuation of corporate cash reserves. I find that the trade liberalization leads to a significant increase in the value of cash for firms experiencing a larger shock to their competitive environment. The impact of the trade liberalization is stronger among firms that face greater risk of losing investment opportunities to rivals. I also show that these inferences about the valuation effect of competition apply more broadly to a large sample of firms.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119913001181
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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 25 (2014)
    Issue (Month): C ()
    Pages: 122-139

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    Handle: RePEc:eee:corfin:v:25:y:2014:i:c:p:122-139
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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