MARKET COMPETITION, ARBITRAGE RISK, AND CAPITAL STRUCTURE: EVIDENCE FROM TAIWAN

2016 ◽  
Vol 11 (01) ◽  
pp. 1650002 ◽  
Author(s):  
YU-EN LIN ◽  
HSIANG-HSUAN CHIH ◽  
CHIA-HSIN CHENG ◽  
YAN-QING KU
Keyword(s):  
Capital Structure ◽  
Agency Costs ◽  
Market Competition ◽  
Risk Preference ◽  
Product Market ◽  
Listed Companies ◽  
Idiosyncratic Risk ◽  
Product Market Competition ◽  
Risk Averse ◽  
Arbitrage Risk

The purpose of this paper is to understand how the product market competition and the arbitrage risk affects managers’ decisions on capital structure. To find managers’ risk preference, we introduce the interaction between market competition and the arbitrage risk of the firm. Sampling from Taiwanese listed companies from 1986 to 2011, we identify both the market competition and the arbitrage risk affects managers’ debt decisions. In addition, we find that most managers in monopolistic firms increase debt to decrease the agency costs. However, some hold risk-averse motivation to enjoy their “quiet life”. These “quiet life” managers exist in those companies that are in non-competitive markets and that exists large idiosyncratic risk.

The impact of product market competition on stock price crash risk

2020 ◽  
Vol 35 (7) ◽  
pp. 1141-1153
Author(s):  
Jia Li ◽  
Zhengying Luo
Keyword(s):  
Stock Price ◽  
Market Competition ◽  
Product Market ◽  
Listed Companies ◽  
Product Market Competition ◽  
Crash Risk ◽  
Competitive Position ◽  
Content Type ◽  
Industry Competition ◽  
The Impact

Purpose The purpose of this paper is to explore the impact of product market competition on the risk of stock price crash based on the degree of industry competition and the competitive position of enterprises. Design/methodology/approach This paper chooses the data of Shanghai and Shenzhen A-share listed companies from 2009 to 2017 as samples and uses a threshold regression model to explore the impact of product market competition on the risk of a stock price crash. Findings The results show that: the overall level of industry competition is negatively correlated with the risk of stock price crash; the competitive position of enterprises and the risk of a stock price crash. The correlation is not significant: for high competitive enterprises, the degree of industry competition is negatively correlated with the risk of stock price crash; for low competitive enterprises, the degree of industry competition is positively correlated with the risk of a stock price crash and the conclusions obtained have passed the robustness test. Originality/value This paper not only enriches the literature on the relationship between product market competition and the risk of stock price crash but also has reference significance for supervisors to allocate resources to supervise information disclosure of listed companies.

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