Abstract
Financial frictions in capital market affect the impact of firms' cash holdings in product market competition. Based on the measure of financial constrain and hedging needs, we analyze the effects of these two factors in the effects of firms'cash holdings. It shows that financially constrained firms will get more market share if they hold more cash reserves. And when the correlation between a firm's cash flow and its investment opportunities is low, its hedging needs is high and prefers reserving cash, so more cash holdings of firms with high hedging needs have more significantly positive effects on firms' competitive performance.
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