Corporate Finance, Innovation, and Strategic Competition by Dr. Cornelia Neff (auth.)

By Dr. Cornelia Neff (auth.)

This e-book analyzes how company finance judgements impression strategic festival and innovation of enterprises within the product marketplace. We examine financial institution personal loan financing and enterprise capital financing. as a result of assymetric details, organizations needs to signal designated contracts with banks or enterprise capitalists. The monetary contracts, in flip, make sure the aggressive options of companies within the product industry. corporations compete in costs for marketplace stocks. as well as that, organisations put money into R&D with the intention to result in product or technique innovation. We express that higher entry to monetary assets improves a firm's industry place and results in a better expense of innovation. Cash-rich organisations will even choose to prey upon financially limited opponents to be able to hinder new marketplace access or to urge industry go out.

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The higher the liquidation value, the more likely that the firm produces high-quality goods. 4 Predatory pricing While in the previous subsection, the leveraged firm) initiated the price cuts in order to signal quality, we here investigate whether the self-financed rival, too, has an incentive to engage in price cuts. The idea behind is that a self-financed firm can prey upon its debt-financed rival and can force it into low-quality production. If firm) has a sufficiently high debt level, it will need to charge a high first-period price in order to generate sufficient profits and to keep the second-period refinancing requirement as low as possible.

23) as ay, aD, where = _ RF; L [D, - p 2T z r /2] + [fl + L]. 24) I denotes the slope of the rival's reaction function. 24), rearranging terms and simplifying we obtain for the optimal level of debt in the symmetric equilibrium: T _ D j = D, =-·z. e. the higher the transportation costs. Moreover, the debt level raises with a higher (upper limit of) liquidation value z. This implies that in industries where assets have higher liquidation values or in which firms have more tangible assets, long-term debt levels will be higher.

1 below), that young finns have to rely on private equity and venture capital instead. In chapter 4, we therefore analyze venture capital financing of a young start-up firm and its impact on product market competition and innovation. 3 Empirical findings So far only a limited number of studies have investigated the interaction between capital structure decisions and product market competition from an empirical point of view. Opler and Titman (1994) study firms in financial distress and find out that highly leveraged firms loose market shares to their less leveraged competitors.

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