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Product Market Threats, Payouts, and Financial Flexibility

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  • GERARD HOBERG
  • GORDON PHILLIPS
  • NAGPURNANAND PRABHALA

Abstract

type="main"> We examine how product market threats influence firm payout policy and cash holdings. Using firms' product text descriptions, we develop new measures of competitive threats. Our primary measure, product market fluidity, captures changes in rival firms' products relative to the firm's products. We show that fluidity decreases firm propensity to make payouts via dividends or repurchases and increases the cash held by firms, especially for firms with less access to financial markets. These results are consistent with the hypothesis that firms' financial policies are significantly shaped by product market threats and dynamics.

Suggested Citation

  • Gerard Hoberg & Gordon Phillips & Nagpurnanand Prabhala, 2014. "Product Market Threats, Payouts, and Financial Flexibility," Journal of Finance, American Finance Association, vol. 69(1), pages 293-324, February.
    • Handle: RePEc:bla:jfinan:v:69:y:2014:i:1:p:293-324
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    File URL: http://hdl.handle.net/10.1111/jofi.12050
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