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Beyond Peers: Cross-Industry Competition and Strategic Financing

Author

Listed:
  • Boris Nikolov

    (University of Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI))

  • Norman Schuerhoff

    (Swiss Finance Institute - HEC Lausanne)

  • Zepeng Wang

    (University of Lausanne and Swiss Finance Institute)

Abstract

Corporate financial leverage within competition networks is determined by both direct and indirect competitors. Using data on firms’ self reported competitors, we identify eleven stable competition communities within the U.S. economy, where firms are grouped into communities based on competitive interactions both within and across industries. We find a strong complementarity between a firm’s leverage and that of its community members, consistent with strategic interactions with both immediate peers and chain effects from the propagation of shocks affecting indirect peers. To achieve identification, we employ a granular instrumental variable approach. Our results highlight that firms’ financial strategies are shaped not only by direct competition but also by the broader competitive environment.

Suggested Citation

  • Boris Nikolov & Norman Schuerhoff & Zepeng Wang, 2024. "Beyond Peers: Cross-Industry Competition and Strategic Financing," Swiss Finance Institute Research Paper Series 24-45, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2445
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4943831
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    More about this item

    Keywords

    capital structure; strategic competition; financial complementarity; competitor networks;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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