Journal of Financial and Quantitative Analysis Vol. 52 No. 6 2017

Investment Efficiency and Product Market Competition

Neal M. Stoughton^1,2,3,4,5,6; Kit Pong Wong^1,2,3,4,5,6; Long Yi^1,2,3,4,5,6

¹ Vienna University of Economics and Business · ² University of Copenhagen · ³ Hong Kong Baptist University · ⁴ Fudan University · ⁵ National Chengchi University · ⁶ University of Hong Kong

Abstract

Does more competition lead to more information production and greater investment efficiency? This question is largely unexplored in the finance literature. This article provides both a model and a series of extensive empirical tests. The model features a 2-stage Bayesian game in differentiated products market competition. We find that competition causes firms to acquire less information and investments to become more inefficient relative to a first-best case with the same market structure. Empirically, the panel regression analysis provides strong support for the theory and shows that investment is more efficient in concentrated industries.

DOI

10.1017/s0022109017000746

Volume

52

Issue

6

Pages

2611-2642

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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