I provide evidence on the impact of foreign competition on firms' propensities to engage in mergers and acquisitions. Using import tariff reductions as exogenous shocks that increase foreign competition, I find that affected firms are more likely to make acquisitions following tariff reductions. Cross-sectional tests show that this association is more pronounced for single segment firms, capital intensive firms, firms with higher profit margins, and firms with better growth opportunities, which suggests that this association is stronger for firms that are affected by increased competition to a greater extent and firms that stand to gain more from acquisitions when faced with increased competition. Moreover, the positive relation between acquisition propensities and tariff cuts is more pronounced for financially unconstrained firms and during times of high capital liquidity, which implies that it is easier for firms with greater access to capital to respond to increases in foreign competition by making acquisitions. Finally, I find some evidence that the acquisitions made in response to tariff decreases are associated with better firm profitability ratios in the following year, indicating that firms respond to increased competition by making acquisitions to improve their operational efficiency.

We study the impact of inside debt holdings on the likelihood of product market recalls. Consistent with inside debt better aligning incentives, we find it is negatively associated with subsequent recalls. This relation is pronounced for industries where managers have greater control over the supply chain and when examining severe recalls. Our results hold irrespective of the firm's financial constraints or cash flow risk. Inside debt has the greatest influence on older and longer tenured executives, indicating that managerial risk aversion plays an important role. Overall, our results indicate that compensation policies can have a positive effect by decreasing the likelihood of costly recalls.

Firms strategically choose more conservative capital structures when they face greater competitive threats stemming from the potential loss of their trade secrets to rivals. Following the recognition of the Inevitable Disclosure Doctrine by US state courts, which exogenously increases the protection of a firm's trade secrets by reducing the mobility of its workers who know its secrets to rivals, the firm increases its leverage relative to unaffected rivals. The effect is stronger for firms with a greater risk of losing key employees to rivals, for those facing financially stronger rivals, and for those in industries where competition is more intense.