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Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions

  • Kovenock, Dan
  • Phillips, Gordon M

We examine whether sharp debt increases through leveraged buyouts and recapitalizations interact with market structure to influence plant closing and investment decisions of recapitalizing firms and their rivals. We take into account the fact that recapitalizations and investment decisions are both endogenous and may be simultaneously influenced by the same exogenous events. Following their recapitalizations, firms in industries with high concentration are more likely to close plants and less likely to invest. Rival firms are less likely to close plants and more likely to invest when the market share of leveraged firms is higher. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 10 (1997)
Issue (Month): 3 ()
Pages: 767-803

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Handle: RePEc:oup:rfinst:v:10:y:1997:i:3:p:767-803
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  17. Kim, Moshe & Maksimovic, Vojislav, 1990. " Debt and Input Misallocation," Journal of Finance, American Finance Association, vol. 45(3), pages 795-816, July.
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  20. John R. Baldwin & Paul K. Gorecki, 1991. "Firm Entry and Exit in the Canadian Manufacturing Sector, 1970-1982," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 300-323, May.
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  24. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
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