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Import Competition and the Composition of Firm Investments

Listed author(s):
  • Fromenteau, Philippe
  • Schymik, Jan
  • Tscheke, Jan

We study how foreign competition affects the composition of investments inside firms. A parsimonious model predicts that firms have an incentive to shift their investments towards more short-term assets when exposed to tougher competition. Using data on expenditures of listed US companies into various asset classes with different lifespans, we document empirical evidence that is consistent with this prediction. Over a fifteen year period between 1995 and 2009, the rise in import competition is associated with a reduction of the firm-specific asset lifespan by about 4.5% on average. We additionally exploit the Chinese WTO accession as an exogenous shock in firm expectations about future exposure to competition.

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File URL: https://epub.ub.uni-muenchen.de/29654/1/Paper.pdf
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 29654.

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Date of creation: 12 Oct 2016
Handle: RePEc:lmu:muenec:29654
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  12. Aamir Rafique Hashmi, 2013. "Competition and Innovation: The Inverted-U Relationship Revisited," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1653-1668, December.
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  16. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1051-1099.
  17. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Survival of the best fit: Exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants," Journal of International Economics, Elsevier, vol. 68(1), pages 219-237, January.
  18. Iacovone, Leonardo & Rauch, Ferdinand & Winters, L. Alan, 2013. "Trade as an engine of creative destruction: Mexican experience with Chinese competition," Journal of International Economics, Elsevier, vol. 89(2), pages 379-392.
  19. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
  20. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
  21. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2014. "Market Size, Competition, and the Product Mix of Exporters," American Economic Review, American Economic Association, vol. 104(2), pages 495-536, February.
  22. Xu, Jin, 2012. "Profitability and capital structure: Evidence from import penetration," Journal of Financial Economics, Elsevier, vol. 106(2), pages 427-446.
  23. Luis Garicano & Luis Rayo, 2016. "Why Organizations Fail: Models and Cases," Journal of Economic Literature, American Economic Association, vol. 54(1), pages 137-192, March.
  24. Laurent Fresard, 2010. "Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings," Journal of Finance, American Finance Association, vol. 65(3), pages 1097-1122, June.
  25. Kyle Handley & Nuno Limão, 2015. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 189-222, November.
  26. David Atkin & Azam Chaudhry & Shamyla Chaudhry & Amit K. Khandelwal & Eric Verhoogen, 2015. "Markup and Cost Dispersion across Firms: Direct Evidence from Producer Surveys in Pakistan," American Economic Review, American Economic Association, vol. 105(5), pages 537-544, May.
  27. Maria Guadalupe & Julie Wulf, 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 105-127, October.
  28. Laurent Fresard, 2010. "Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings," Post-Print hal-00537081, HAL.
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