Strategic debt: evidence in manufacturing

Showalter, Dean

doi:10.1016/s0167-7187(97)00030-1

Cited by 58 publications

(41 citation statements)

References 22 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Finally, in a recent study by Showalter (1999), the level of demand and cost uncertainty has been found to be significant factors in debt ratios. As demand uncertainty rises in price competition, firms in concentrated industries may take on more debt to commit to higher prices, inducing rivals to do likewise.…”

Section: A Data and Variablesmentioning

confidence: 90%

Strategic debt and patent races

Jensen

Showalter

2004

International Journal of Industrial Organization

Self Cite

View full text Add to dashboard Cite

Most traditional studies of R&D do not consider that the use of leverage to finance R&D may affect total R&D expenditures in a patent race. We show that debt acts as a commitment to a smaller amount of total R&D spending (debt+equity) than would occur if firms were entirely equity financed. A commitment to lower R&D expenditure can be strategically beneficial; under a flow-cost model, debt induces lower R&D expenditure from its rival and thus increases its expected profit. Firms in this case are partially debt-financed in equilibrium. In a fixed cost model, debt has no strategic value in a symmetric equilibrium. In this case debt induces higher R&D expenditure from its rival and thus decreases its expected profit. Firms in this case use no strategic debt, and may in fact use "negative" strategic debt; that is, in a more general model where debt has other uses, the total debt level is reduced when the strategic effect is included. Our empirical study gives support to the fixed, up-front R&D result that higher debt levels are associated with lower overall R&D expenditures.JEL classifications: L0, L1, L6, G3

show abstract

Section: A Data and Variablesmentioning

confidence: 90%

Strategic debt and patent races

Jensen

Showalter

2004

International Journal of Industrial Organization

Self Cite

View full text Add to dashboard Cite

show abstract

“…This approach introduces firm type (industry) and time-specific effects into the regression equations, which, in turn, reduce or avoid bias with respect to omitted variables. As a result, the firm type (industry) and the time-specific effects of both the omitted and included variables are captured (Showalter 1999). The econometric technique used in the model included the computation of heteroskedasticity-consistent standard errors.…”

Section: Methodology and Dependent Variablementioning

confidence: 99%

Capital Structure Decisions During a Firm's Life Cycle

2009

View full text Add to dashboard Cite

show abstract

“… See Opler and Titman (1994),Chevalier (1995a,b),Phillips (1995),Kovenock and Phillips (1997), andShowalter (1999). See alsoOechssler and Schuhmacher (2004), who discuss the empirical literature.2 Note thatBrander and Lewis (1986, p. 959) also use this interpretation.…”

mentioning

confidence: 99%

The strategic use of debt reconsidered

Haan

Toolsema-Veldman

2008

International Journal of Industrial Organization

View full text Add to dashboard Cite

We consider a two-stage differentiated goods duopoly model with demand uncertainty linking firms' capital structure choice to their output market decisions. Using a numerical analysis, we study how the equilibrium of the model is affected by demand volatility and the substitutability between products. In doing so, we correct a mistake in earlier papers in this literature. Most importantly, we find that the equilibrium debt level decreases as demand becomes more volatile.

show abstract

Strategic debt: evidence in manufacturing

Cited by 58 publications

References 22 publications

Strategic debt and patent races

Strategic debt and patent races

Capital Structure Decisions During a Firm's Life Cycle

The strategic use of debt reconsidered

Contact Info

Product

Resources

About