← Search

Journal of Corporate Finance Vol. 35 2015

Product market competition and corporate investment: Evidence from China

Fuxiu Jiang1; Kenneth A. Kim2,3; John R. Nofsinger4,5; Bing Zhu6

1 Renmin University of China · 2 University at Buffalo, State University of New York · 3 Tongji University · 4 University of Alaska Anchorage · 5 Providence College · 6 Central University of Finance and Economics

Abstract

We find a positive relation between product market competition and corporate investment using a sample of Chinese manufacturing firms during 1999–2010. A quasi-natural experiment and change regressions yield consistent evidence. We postulate that China's high and predictable growth rate, as it transitions from a developing economy to a developed economy, is what drives the positive relation between competition and investment. We directly test and provide support for this growth-oriented explanation. We also find that high investment under high competition is a value-enhancing proposition for firms. Finally, we test whether some firm types are more likely to invest under high competition in a growing economy, and we find that firms with high predation risk and firms that are industry leaders invest more.

DOI
10.1016/j.jcorpfin.2015.09.004
Volume
35
Pages
196-210
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite