Type of Document Dissertation Author Chowdhury, Jaideep Author's Email Address firstname.lastname@example.org URN etd-11172008-150051 Title Three Essays on Product Market Capital Market Interactions Degree PhD Department Economics Advisory Committee
Advisor Name Title Haller, Hans H. Committee Chair Ashley, Richard A. Committee Member Patterson, Douglas M. Committee Member Zhou, Joe Yang Committee Member Keywords
- Capital Markets
- Financial Constraints
- Executive Compensation
- Product Markets
Date of Defense 2008-11-05 Availability unrestricted AbstractThe Industrial Organization literature investigates the product market decisions of a firm while the corporate finance literature explores the financing decisions of the firm. But the truth is both the financing decisions and the product market decisions are interdependent and should be modeled together to develop a better understanding of a firm's decisions. This thesis takes a step in that direction.
The manager of a firm caters to the equity holders of the firm who are protected by limited liability. Ex-ante debt is issued and at the time of product market decision, debt is exogenous. The traditional product market capital market interaction literature has argued that debt financing leads to more aggressive product market strategies. If debt is treated as endogenous and/or the switching state of nature is endogenous, it can be shown that debt financing may lead to less aggressive product market strategies. Further, if external financing consists of both debt and equity financing, it is shown that a financially constrained firm shall produce less than what it would have produced if it was not financially constrained. Finally, managerial compensation is reported to be one of the reasons for product market aggressiveness of a firm in the context of product market capital market interaction.
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