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

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  • Dan Kovenock
  • Gordon M. Phillips

Abstract

This paper examines whether capital structure decisions interact with product market characteristics to influence plant closing and investment decisions. The empirical evidence in this paper shows that a firm·s capital structure, plant level efficiency, and industry capacity utilization are significant determinants of plant (dis)investment decisions. We find that the effects of high leverage on investment and plant closing are significant when the industry is highly concentrated. Following their recapitalizations, firms in industries with high concentration are more likely to close plants and less likely to invest . In addition, we find that rival f irms are less likely to close plants and more likely to invest when the market share of leveraged firms is higher.

Suggested Citation

  • Dan Kovenock & Gordon M. Phillips, 1995. "Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions," CESifo Working Paper Series 89, CESifo.
  • Handle: RePEc:ces:ceswps:_89
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    Cited by:

    1. Gordon M Phillips & Vojislav Maksimovic, 1996. "Efficiency of Bankrupt Firms and Industry Conditions: Theory and Evidence," Working Papers 96-12, Center for Economic Studies, U.S. Census Bureau.
    2. Bergman, Mats & Johansson, Per, 2000. "Strategic Investments in the Pulp and Paper Industry: A Count Data Regression Analysis," Umeå Economic Studies 536, Umeå University, Department of Economics.

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