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Capital structure and competitive position in product market


  • Mitani, Hidetaka


This paper examines the effect of capital structure on the competitive position of firms in the product market, as measured by the market share. Theoretical predictions suggest that this effect depends on whether Cournot or Bertrand competition determines firms' interactions. We present evidence that leverage affects market share positively under both types of competitions. This evidence supports the prevailing version of the limited liability effect of debt financing. Alternatively, we demonstrate that a firm's competitive position is important in determining its choice of capital structure.

Suggested Citation

  • Mitani, Hidetaka, 2014. "Capital structure and competitive position in product market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 358-371.
  • Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:358-371
    DOI: 10.1016/j.iref.2013.06.009

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    References listed on IDEAS

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    More about this item


    Bertrand competition; Capital structure; Cournot competition; Market share;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General


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