Degree Of Product Market Competition Research Articles

Digital finance and corporate breakthrough innovation: Evidence from China.

This paper empirically investigates the impact of digital finance on the breakthrough innovation of enterprises with a sample of A-share listed companies in Shanghai and Shenzhen from 2011 to 2022. It is found that digital finance can promote corporate breakthrough innovation, and presents certain structural heterogeneity characteristics. The mechanism test shows that digital finance has the dual attributes of a financing platform and a social platform, which can promote breakthrough innovation by alleviating corporate financing constraints and expanding corporate social networks. Heterogeneity analysis reveals that the role of digital finance in promoting breakthrough innovation is characterized by regional heterogeneity, with digital finance playing a greater role in promoting breakthrough innovation in provinces with a low level of development of the banking sector, provinces with a high level of development of the capital market sector, and the central region. In addition, the degree of firms' external financing dependence and the degree of product market competition can strengthen the positive effect of digital finance on firms' breakthrough innovation. This paper enriches the related research on the impact of digital finance on enterprise innovation, and provides theoretical basis and policy insights on how digital finance can better assist the innovation-driven development strategy.

Productivity and the Welfare of Nations

Abstract We show that the welfare of a country’s infinitely lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates. We use these results to calculate welfare gaps and growth rates in a sample of developed countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both developed and developing countries.

Role of Venture Capital in Enterprise Innovation Under Psychological Capital and Heterogeneity of Entrepreneur Capital.

This paper is to explore the impact of entrepreneurial psychological capital and capital heterogeneity on venture capital behavior, and further analyze the effect of venture capital on the innovation activities of enterprises. Based on the existing research results, this paper proposed hypotheses on the relationship between venture capital and technological innovation. According to the data samples of growth enterprises market (GEM) listed companies from 2010 to 2016, the main research variables were defined and a theoretical analysis model was constructed. The theory and empirical research clarify the relationship between venture capital and technological innovation. (1) According to the regression results of venture capital participation as well as innovation input and innovation output, the regression coefficients of venture capital participation are 0.609 and 0.203, which are significant at the levels of 10 and 1%, respectively. It indicates that venture capital participation has a positive impact on the innovation input and output of enterprises. (2) The coefficient of venture capital participation is positive, and the coefficient of is significantly negative. Therefore, the degree of product market competition has a significant moderating effect on the relationship between venture capital participation and technological innovation. Venture capital provides funding support for technological innovation in startups. At the same time, because it holds a certain percentage of shares, it participates in enterprise innovation activities and provides guidance for companies to maintain profitable growth, thereby improving their innovation awareness and level. This research makes up for the shortcomings of the previous research model that uses a single dimension to measure technological innovation. As a result, this study comprehensively investigates the impact of venture capital on the innovation input and output of enterprises, enhancing the integrity and reliability of previous research conclusions.

Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?

This paper investigates the joint effect of consumers' environmental concerns and product-market competition on firms' decisions whether to innovate or dirty. We first develop a step-by-step innovation model to capture the basic intuition that socially responsible consumers induce firms to escape competition by pursuing greener innovations. To test and quantify the theory, we bring together patent data, survey data on environmental values, and competition measures. Using a panel of 8,562 firms from the automobile sector that patented in 42 countries between 1998 and 2012, we indeed find that greater exposure to environmental attitudes has a significant positive effect on the probability for a firm to innovate in the clean direction, and all the more so the higher the degree of product market competition. Results suggest that the combination of historically realistic increases in prosocial attitudes and product market competition can have the same effect on green innovation as major increase in fuel prices.

Product Market Competition and Financial Flexibility: Evidence from China

This paper discusses the effects of product market competition on the value and level of corporate financial flexibility of Chinese listed firms for the period 2001-2014. We use three different measures of product market competition: predation risk, natural hedge and price-cost margin. Predation risk is used to measure how firms’ growth opportunities covary with those of their industry rivals. We thus calculate the correlation of firm stock returns with industry stock returns. The regression coefficient on the industry return is then used as the proxy for predation risk. Greater values of this measure indicate a greater predation risk, more interdependence of investment opportunities and therefore fiercer competition. Natural hedge is calculated as the absolute value of the difference between a firm’s ratio of net fixed assets per employee and the median ratio in the industry. To make this difference comparable across industries, the difference is then scaled by the industry range of the capital-to-labor ratio. Smaller values of this measure indicate greater similarity of a firm’s operations with industry counterparts and therefore signal fierce competition. The results show that when the other conditions remain unchanged, the predation risk weakens the spare debt capacity and excessive cash holdings and ultimately decreases corporate financial flexibility. Except for the natural hedge used to measure the degree of product market competition, which does not significantly affect spare debt capacity, the other results show that natural hedge reduces excessive cash holdings and corporate financial flexibility. On the one hand, product market competition increases the demand for financing; because Chinese listed firms are subjected to China Securities Regulatory Commission (CSRC) supervision for issuing securities, they must increase debt and reduce their spare debt capacity. On the other hand, product market competition increases investment expenditure, consumes cash, and reduces excessive cash holdings. In the end, product market competition reduces corporate financial flexibility.

The Bright Side of Political Uncertainty: The Case of R&D

We examine the relationship between political uncertainty and R&D investment by exploiting the timing of U.S. gubernatorial elections as a source of plausibly exogenous variation in uncertainty. In contrast to the literature documenting negative effects of political uncertainty on real investment, we find that uncertainty over government policy encourages firm-level R&D. Firms increase R&D investments by an average of 4.6% in election years relative to non-election years. The uncertainty effect is stronger in hotly contested elections, in politically sensitive and hard-to-innovate industries, and in firms subject to higher growth options and greater product market competition. Our findings suggest that, as predicted by models of investment under uncertainty, the real effects of political uncertainty depend on the properties of the investment and the degree of product market competition and therefore the total effect of political uncertainty on the long-run growth of an economy is unclear.

Monetary Policy, Product Market Competition and Growth

In this paper we argue that monetary easing fosters growth more in more credit‐constrained environments, and the more so the higher the degree of product market competition. Indeed, when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry‐level and firm‐level data from the euro area to look at the effects on sectoral growth and firm‐level growth of the unexpected drop in long‐term government bond yields following the announcement of the Outright Monetary Transactions programme (OMT) by the European Central Bank. We find that the monetary policy easing induced by OMT contributed to raising sectoral (firm‐level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector).

Monetary Policy, Product Market Competition, and Growth

In this paper we argue that monetary easing fosters growth more in more credit-constrained environments, and the more so the higher the degree of product market competition. Indeed when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry-level and firm-level data from the Euro Area to look at the effects on sectoral growth and firm-level growth of the unexpected drop in long-term government bond yields following the announcement of the Outright Monetary Transactions program (OMT) by the ECB. We find that the monetary policy easing induced by OMT, contributed to raising sectoral (firm-level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector).

Multinationals, competition and productivity spillovers through worker mobility

Spillovers can arise when multinational …rms (MNEs) train local employees who later join domestic …rms, bringing with them part of the technological, marketing and man- agerial knowledge that they have acquired. Theoretical models by Fosfuri et al (2001) and Glass and Saggi (2002) suggest that the direction and the intensity of the mobility of trained workers is aected by market conditions including the degree of product market competition. This, in turn, details an additional channel through which competition is likely to aect total factor productivity. In this paper, we take this hypothesis to the data for the …rst time by using the Finnish longitudinal employeer-employee data. We …rst quantify the importance of spillovers via worker mobility by estimating augmented production functions. Second, we estimate several competing risks models to assess the impact of product market competition and absorptive capacity on worker mobility. We …nd that productivity spillovers arise only when workers move from domestic-owned multi- national …rms to domestic local …rms. The spillover eects are economically important. Further, our results point out that competition aects the productivity spillovers of purely domestic plants adversely by reducing worker mobility.

Trade, Firm Selection and Innovation: The Competition Channel

The availability of rich …rm-level data sets has recently led researchers to uncover new evidence on the eects of trade liberalization. First, trade openness forces the least produc- tive …rms to exit the market. Secondly, it induces surviving …rms to increase their innovation eorts and thirdly, it increases the degree of product market competition. In this paper we propose a model aimed at providing a coherent interpretation of these …ndings. We intro- ducing …rm heterogeneity into an innovation-driven growth model, where incumbent …rms operating in oligopolistic industries perform cost-reducing innovations. In this framework, trade liberalization leads to higher product market competition, lower markups and higher quantity produced. These changes in markups and quantities, in turn, promote innovation and productivity growth through a direct competition eect, based on the increase in the size of the market, and a selection eect, produced by the reallocation of resources towards more productive …rms. Calibrated to match US aggregate and …rm-level statistics, the model predicts that a 10 percent reduction in variable trade costs reduces markups by 1:15 percent, …rm surviving probabilities by 1 percent, and induces an increase in productivity growth of about 13 percent. More than 90 percent of the trade-induced growth increase can be attributed to the selection eect.

Product market competition and access to credit

In this paper, we unveil a disregarded benefit of product market competition for firms. We introduce the probability of bankruptcy in a simple model where firms compete a la Cournot and apply for collateralized bank loans to undertake productive investments. We show that the number of competitors and the existence of outsiders willing to acquire the productive assets of distressed incumbents affect the equilibrium share of investment financed by bank credit. Using a sample of Italian manufacturing firms, mostly small- and medium-sized enterprises (SMEs), we found evidence showing that the degree of product market competition is positively correlated with the share of investment financed by bank credit only when outsiders are absent.

Macroeconomic and Technological Dynamics: a Structuralist-Keynesian Cumulative Growth Model

In the Structuralist-Keynesian approach, economic growth is a cumulative causation process driven by a continuous interaction between macroeconomic and technological dynamics, involving several structural variables. In this context, labour productivity is both an input of the growth process, influencing macroeconomic dynamics, and a consequence of growth, because technological progress is endogenous and depends on macroeconomic dynamics. The aim of this paper is to build a Structuralist-Keynesian cumulative growth model driven by the dynamic interaction between the demand regime and the productivity regime. The model specifies the role of labour productivity and unit labour costs in the macroeconomic and technological dynamics. The results show that the effect of unit labour cost dynamics on economic growth depends on the degree of product market competition, innovation, and the distributional effects on aggregate demand. Finally, the main relationships of the model are empirically investigated for the European countries in the period 1992-2012, using both System GMM and Difference GMM dynamic panel models. JEL code: O41, O33, O47

Earnings management, business cycle, and product market competition

Using annual data from non-financial listed companies in China between 2001 and 2011, this paper empirically examines the degree and key mechanism of upwards earnings management by companies under cyclical fluctuations of the macro-economy. We find that: firstly, upwards earnings management is significantly and positively correlated with the growth rate of the macro-economy, indicating a relatively strong pro-cyclical effect; secondly, the pro-cyclical effect of upwards earnings management will be more significant if the management expects corporate profit to be lower than the average profit for the industry; thirdly, the pro-cyclical effect of upwards earnings management will be more significant if the company faces greater pressure from product market competition. Further tests reveal that the greater the incentive for management, the greater the financing restrictions, and the more sensitive the industry is to the economic cyclical fluctuations, then the more significant is the pro-cyclical effect of upwards earnings management. The results demonstrate that the key mechanism of upwards earnings management during the economic boom is the expected profit based on the difference between the previous year’s expected firm’s profit and that year’s average profit for the industry, as well as the pressure of product market competition. Thus, the combination of the macro-economic state and the degree of product market competition will play an important role in understanding earnings management behaviour.

Switching to Green: The Timing of Socially Responsible Innovation

We develop a timing game for adopting a product technology that features a public good. We investigate the effects of the degree of product market competition, product differentiation, the private benefits from contributing to the public good, and firm asymmetries on the timing of adoption. We then examine the effects of consumer subsidies on equilibrium timings and the proliferation of the public good.

Population, competition, innovation, and economic growth with and without human capital investment

This paper analyzes how population and product market competition (PMC) may interact with each other in affecting the pace of economic growth. The impact of a change in population (size or growth) and in the degree of PMC on productivity growth may vary depending on the presence of human versus physical capital investment, the way in which individuals may purposefully invest in human capital, the type of input used in the uncompetitive sector, the form of households’ intertemporal utility, and whether PMC (measured by the degree of substitutability between differentiated intermediates) is disentangled or not from the input shares in aggregate income. It is found that a growth model with human capital accumulation a la Lucas (J Monet Econ 22(1):3–42, 1988) and a continuum of degrees of intertemporal altruism can predict an ambiguous link between population and economic growth rates, in line with the available empirical evidence. The article also analyzes the conditions under which market structure (monopoly power) and population (size or growth) may be complementary to each other in the process of long-run economic growth.

Product market competition, controlling shareholders tendency, and cash dividends policy: Empirical analysis based on Chinese listed companies

Based on unbalanced panel dates of 4060 companies listed from 2003 - 2007 in Shanghai and Shenzhen Stock Markets, this paper empirically studies the degree of product market competition, the relationship between cash dividends distribution tendency and cash dividends policy. Results show that controlling shareholders have significant motivation to distribute cash dividends, and this kind of incentive is not significantly influenced by nature of shareholders. Product market competition can weaken the motivation of cash dividends distribution, and promote companies to reserve more cash for operation. This study shows that the product market competition plays a good role of external governance mechanism, and can effectively curb the controlling shareholders for “empty” companies through cash dividends. Key words: Product market competition, dividend policy, controlling shareholders, empty.

The Real Effects of Hedge Fund Activism: Productivity, Risk, and Product Market Competition

This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention, we also find that efficient capital redeployment is an important channel via which activists create value. Furthermore, our analyses demonstrate that measuring performance using the Compustat data is likely to lead to a downward bias because target firms experiencing greater improvement post-intervention are also more likely to disappear from the Compustat database. Finally, consistent with recent work in asset-pricing linking firm investment decisions and expected returns, we show how changes to target firms’ productivity are associated with a decline in systemic risk, particularly in competitive industries.

Monetary institutions, imperfect competition and employment outcomes

Abstract This paper explores the employment effects of strategic interactions between firms, trade unions and monetary institutions in the context of an imperfectly competitive macroeconomic model with right-to-manage bargaining. The results suggest that the employment effect of joining a monetary union is conditional upon the degree of monetary accommodation of the union-wide central bank, the degree of product market competition, and the relative bargaining power in wage-setting. In addition, the employment effect of a change in the degree of monetary accommodation of the domestic or the union-wide central bank is conditional upon the degree of product market competition and the distribution of bargaining power.

Switching Costs, Cost of Debt, and Product Market Competition

This paper studies switching cost induced cost of debt with product market competition and non-financial stakeholders. We find that consumer switching costs endogenously generate cost of debt, and the cost of debt is increasing in the switching cost, but decreasing in the degree of product market competition. Moreover, a firm's price is decreasing in its own debt, but increasing in its rival's debt. We also study the welfare implications and find that debt generally decreases both consumer surplus and social welfare.

Switching to Green: Policies to Accelerate Provision of Socially Responsible Products

We develop a timing game for adopting a product technology that features a public good. We investigate the effects of the degree of product market competition, product differentiation, the private benefits from contributing to the public good, and firm asymmetries on the timing of adoption. We then examine the effects of consumer subsidies on equilibrium timings and the proliferation of the public good.