Sales efforts, capital structure and monopoly power

Abstract

Explains how sales efforts try to create product differentiation and increase monopoly power; and uses 1995‐1996 data from a panel of 45 Greek firms to examine the relationship between debt‐to‐equity ratio and profitability, taking a firm’s sales promotion expenses into account. Applies three mathematical models to the data and finds a significant negative relationship between debt‐to‐equity and profit margin, i.e. that the cost of borrowing capital exceeds the benefits of investment. Finds a significant positive relationship between sales promotion expenses and profit margin, which suggests that promotional activities do increase monopoly power. Briefly considers consistency with other research.