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Debt and Capacity Commitments


  • J. Chris Leach
  • Nathalie Moyen
  • Jing Yang


In capital-intensive industries, firms face complicated multi-staged financing, investment, and production decisions under the watchful eye of existing and potential industry rivals. In various representations of this environment, we show that a first-mover advantage in debt weakly dominates a first-mover advantage in capacity. Without a first-mover advantage in debt, the incumbent may suffer a dead-weight loss. When both the entrant and incumbent deploy debt prior to capacity, a first-mover in capacity benefits from softer competition. With a long-purse debt cost, leading in debt still remains advantageous. Copyright 2013, Oxford University Press.

Suggested Citation

  • J. Chris Leach & Nathalie Moyen & Jing Yang, 2013. "Debt and Capacity Commitments," Review of Finance, European Finance Association, vol. 17(4), pages 1365-1399.
  • Handle: RePEc:oup:revfin:v:17:y:2013:i:4:p:1365-1399

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    Cited by:

    1. 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.
    2. Cookson, J. Anthony, 2017. "Leverage and strategic preemption: Lessons from entry plans and incumbent investments," Journal of Financial Economics, Elsevier, vol. 123(2), pages 292-312.

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