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Foreign competition and the durability of US firm investments

Author

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  • Philippe Fromenteau
  • Jan Schymik
  • Jan Tscheke

Abstract

How does the exposure to product market competition affect the investment horizon of firms? We study if firms have an incentive to shift investments toward more short‐term assets when exposed to tougher competition. Based on a stylized firm investment model, we derive a within‐firm estimator using variation across investments with different durabilities. Exploiting the Chinese World Trade Organization (WTO) accession, we estimate the effects of product market competition on the composition of US firm investments. Firms that experienced tougher competition shifted their expenditures toward investments with a shorter durability. This effect is larger for firms with lower total factor productivity.

Suggested Citation

  • Philippe Fromenteau & Jan Schymik & Jan Tscheke, 2019. "Foreign competition and the durability of US firm investments," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 532-567, September.
    • Handle: RePEc:bla:randje:v:50:y:2019:i:3:p:532-567
    DOI: 10.1111/1756-2171.12286
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    Cited by:

    1. Chen, Sheng-Syan & Peng, Shu-Cing & Yeh, Chia-Wei, 2023. "Does import competition from China discipline overconfident CEOs in U.S. firms?," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 277-297.
    2. Klaus S. Friesenbichler & Werner Hölzl & Agnes Kügler & Andreas Reinstaller, 2021. "Importwettbewerb mit China. Auswirkungen auf das Wachstum der Unternehmensproduktivität in der EU," WIFO Monatsberichte (monthly reports), WIFO, vol. 94(3), pages 225-234, March.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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