Product Market Competition and Debt Choice: A Study on Cement Companies Enlisted in Capital Market in Bangladesh

Abstract

<i>Purpose: </i>This study aims to contribute to this body of knowledge by examining the effect of product market competitiveness on enterprises' dependence on bank loans. <i>Design/methodology/approach:</i> To examine the effect of product market rivalry on loan selection, we look at a sample of Bangladeshi firms from 2010 to 2020. We limit our research to publicly traded corporations since they often choose between public and private debt. The generalized least square (GLS) model is applied to identify the effect of product market competitiveness on enterprises' dependence on bank loans. <i>Findings: </i>Using a sample of 60 firms, between 2010 and 2020, we discovered that product market competition encouraged enterprises to rely less on bank loan funding. Additionally, we demonstrate that competitive pressure has a more significant impact on debt selection for firms that are more exposed to competition, face more significant financial constraints, and have less robust governance practices. Additionally, we observe a correlation between competition in the product market and long-term maturity debt. A critical insight we establish in our study is that external governance pressure from the product market can act as a replacement for the monitoring of bank debt.<i> Research limitations/implications: </i>Despite the DSE having 308 listed businesses, the study only considers the top 60 as market capitalization. As a result, the small sample size may limit the generalizations that can be derived from our findings. Another disadvantage is that the study only looked at cement businesses, even though the DSE has a variety of companies listed.<i> Originality/value:</i> Our research paper contributes to the existing literature on Product Market Competition and Debt Choice in an emerging market like Bangladesh. To the best of the authors' knowledge, no study has yet been conducted on the Product Market Competition and Debt Choice for taking five-year financial statements in Bangladesh.