Financial Hedging and Product Market Rivalry

This paper examines how managerial overconfidence affects loan covenant usage. We find that creditors significantly use more covenants; increase covenant intensity; use financial (but not general) covenants; use performance‐based and capital‐based covenants and rely on different types of covenants such as debt to cash flow, coverage ratio, net worth, debt to balance sheet and liquidity covenants to curb the default risk emanating from managerial overconfidence. Besides, creditors tighten individual covenants such as debt to cash flow covenant and current ratio covenant in order to alleviate their risk exposure. Covenants that serve to allocate the control rights ex‐post are found to be important in controlling overconfidence risk. Covenant usage is reported to be quantitatively larger in the loan contracts of firms with higher market‐to‐book ratios, reflecting that high growth firms provide the opportunities for overconfident CEOs to invest more intensively. To address endogeneity, we use propensity score matching to mitigate potential endogeneity problem. In addition, we employ the SA Index and WW Index to control for firms' financial constraint. The effects of overconfident CEOs to loan covenant remain significant regardless of the firms' financial conditions.

The objective of this paper is to meta-analyze the result of relevant literature capturing the relationship measured in terms of correlation coefficient between valuation and earnings management; business practices (corporate governance) and earnings management; select business practices (financial constraints, credit quality, diversification strategy, product market compeition) and earnings management. We examined 30 empirical studies for the period 2006 to 2015 reflecting 53 correlations among the variables. The result indicates that corporate governance measured using governance index, audit opinion, institutional ownership, family ownership, promoter ownership, dual share, board size, CEO duality and board index have a significant negative relationship with earnings management. This signifies that an effective governance mechanism reduces the extent of earnings management in the firm. The moderator analysis confirmed that the result is similar across different measures of earnings management. In addition, select business practices (product market competition, financial constraints, credit ratings, diversification strategy) show a significant negative relationship with earnings management.

We examine how product market competition affects the disclosure of innovation. Theory posits that product market competition can cause firms to increase their disclosure of innovation to deter product market competitors. Consistent with this reasoning, we find that patent applicants in more competitive industries voluntarily accelerate their patent disclosures, which are credibly disclosed via the United States Patent and Trademark Office. Our inferences are robust to using changes in industry-level import tariffs as sources of plausibly exogenous variation in product market competition in difference-in-differences designs. Consistent with patent disclosure deterring product market competitors, we find that timelier patent disclosures are more strongly associated with declines in the similarity of competitors' products than are less timely patent disclosures. In total, our results suggest that product market competition increases patent disclosure timeliness, which is consistent with firms using the disclosure of innovation to deter product market competition. JEL Classifications: D23; G38; O30; O31; O33; O34; O38.

This article evaluates the moderating effects of corporate governance mechanisms on the relationship between earnings management and product market competition. Market concentration, as measured by the HHI has shown significantly negative association with accrual and real earnings management. In contrast, product market power, as measured by the industry size, demonstrates a significant positive association. The result further illustrates that the cost of industry entry significantly impacts accrual earnings management. The corporate governance mechanism (CGI) significantly decreases earnings manipulation. Moreover, the corporate governance mechanism (CGI) considerably moderates the association between market concentration, industry entry cost, and earnings management. Compared to high and low-competitive industries, the impact of market competition on earnings management in moderately competitive industries is more significant. After establishing the Bangladesh Competition Commission, product market competition has shown more impact on earnings management. This research is the initial attempt to examine the moderating effect of corporate governance mechanisms on the relationship between product market competition and earnings management from the perspective of Bangladesh.

Environmental regulation is widely viewed as a key driver of firms' green investment, yet evidence remains mixed, particularly in emerging economies where financial constraints are pervasive. This study examines whether environmental pressure is associated with firms' green investment and whether this relationship is conditioned by financial constraints. Using firm-level data from the World Bank Enterprise Survey in Vietnam, we estimate nonlinear probability models with interaction terms, controlling for firm characteristics as well as industry and regional fixed effects. The results show that environmental pressure is positively associated with green investment, but the magnitude is modest. Financial constraints significantly reduce the likelihood of green investment and weaken firms' responses to environmental pressure. Marginal effects indicate that regulatory pressure is more likely to translate into investment among firms facing lower financial constraints, while the association becomes negligible for financially constrained firms. These findings highlight a conditional mechanism through which environmental regulation operates. Regulatory pressure alone is insufficient to induce widespread green investment when financial constraints are binding. Instead, its effectiveness depends critically on firms' financial conditions. By providing firm-level evidence from an emerging economy, this study contributes to a more integrated understanding of how regulatory and financial factors jointly shape environmental investment behavior.

This paper investigates whether the valuation effect of corporate governance depends on the degree of competition in the companies’ product markets in a large international sample covering 14 countries from the European Union (EU). Besides providing external validity of previous US-centred studies, this paper uses more comprehensive and reliable measures of both product market competition and corporate governance. Consistent with the hypothesis that product market competition acts as a substitute for corporate governance as competitive pressure imposes discipline on managers to maximise firm value, our results show that corporate governance significantly increases firm value in non-competitive industries only. When investigating the channels through which firm value may be increased, we find that good governance for firms in non-competitive industries leads them to have more capital expenditures, spend less on acquisitions, and be less likely to diversify. Our results are robust to a large number of robustness checks including the use of alternative measures of competition and governance, as well as using alternative regression specifications.

CEO turnover, product market competition, and leverage policy

The present study aimed to investigate the relationship between product market competition with the cash balance is emphasized the role of corporate governance. In this study, in accordance with the purpose, 3 is hypothesized that in the present case was statistical analysis and research. A sample of 17 companies active in the automotive industry are listed on Tehran Stock Exchange data for a period of 5 years were analyzed. Hypotheses through multiple regression models were evaluated in accordance with the findings, product market competition, the role of capital markets in response to changes in the cash balance had. However, the involvement of major stakeholders has led the competition in the product market, the capital market reaction to changes in the cash balance, stimulate. This applies in particular institutional shareholders and potentially reflect the regulatory role of such shareholders.

Search, product market competition and CEO pay

Motivated by the literature on the finance – growth nexus, this paper explores the mechanisms through which finance affects corporate investments and capital accumulation. We separate the effects of financial conditions from those of financial development. Based on a sample of firms from five Asian emerging economies, we find that (1) financial conditions and financial development affect corporate investments through different channels. Financial conditions affect firms’ growth opportunities and investment demand. Financial development primarily affects firms’ external financing constraints. (2) Large firms benefit more from improved financial conditions, while small firms benefit more from financial development. (3) The effects of financial conditions and the level of financial development are asymmetric: they are stronger when the global financial crisis was unfolding and weaker during the subsequent rebound.

PurposeThis study aims to investigate the influence of macro-financial conditions on firm-level capital allocation as a micro-transmission mechanism of monetary policy in Vietnam.Design/methodology/approachThe authors employ a dynamic model of investment based on the Euler equation approach that allows for financial frictions. The financial conditions are proxied by a composite index of the current states of financial variables, including interest rates, exchange rates, stock prices, and credit demand – which captures short-term shocks in monetary transmission channels. Corporate financing constraints, as a reflection of financial frictions, are measured by the sensitivity of investment to internal funds, which are extensively examined in terms of both negative and positive cash flows.FindingsIn the presence of a non-monotonic (or U-shaped) investment–cash flow relation, the empirical evidence from Vietnamese listed firms indicates that financial conditions affect investment behavior for only firms with negative cash flows, in the sense that better financial conditions alleviate the level of “negative” financing constraints (i.e. the sensitivity of investment to negative cash flow). This effect is greater for larger firms and more likely pronounced for firms without state ownership.Originality/valueThis study contributes to the literature on corporate financing constraints in a manner of considering the macroeconomic dimension, specifically exploring the asymmetric impacts of financial conditions on the investment sensitivity to cash flow.

This paper examines how the initiation of credit default swap (CDS) trading affects the product market competition faced by the referenced firms in the US. The trading of CDS provides an avenue for creditors to hedge default risks, thereby weakening the incentives to monitor the borrowers. Our paper shows that the trading of CDS increases firm-level product market competition because a reduced creditor monitoring effect can lead to growing shareholder demand for information disclosure, revealing strategic information that may undermine the product market competency of the firm when disclosed. While prior literature shows that CDS-traded firms increase both the likelihood and frequency of earnings forecasts as a direct response to shareholder demand, we observe that firms made their mandatory disclosure (i.e., Form 10-K) less readable as a potential way to reduce strategic disclosure. We also find that the presence of institutional investors generally reduces a firm’s competition, but this positive effect is overturned in the presence of CDS trading.

Globalization, Product Market Competition and Investment

Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects the prices of options on equity and leads to an inverse relationship between equity returns and volatility, generating a negative volatility skew in option prices. Using a large sample of U.S. equity options, we provide empirical support for this finding and demonstrate the importance of accounting for product market competition when explaining the cross-sectional variation in option skew. Received June 28, 2017; editorial decision October 23, 2018 by Editor Andrew Karolyi. Authors have furnished supplementary Internet Appendices, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Product Market Competition and Equity Returns