||Capital structure, competitive strategy, and firm performance
||Institute of International Business
This study investigates the capital structure of cross-listing firms and their incumbent competitors in the U.S. market. These financially less leveraged cross-listing firms can execute aggressive competitive behavior in the market. In this study we explore the strategic advantage of cross-listing announcements as part of a competitive strategy measure (CSM)—strategic substitutes (SS) or strategic complements (SC). In our empirical results, we find that the cross-listing announcements of the less leveraged firms are positively correlated to the value of firm, and the more financially leveraged competitors do worse. In addition, we find the significantly positive effects which result from the cross-listing announcements made by the less financially leveraged firms with SS. However, their competitors with more financial leverage have obvious negative influences on the value of rival firm. Furthermore, there are significant positive impacts upon the less financially leveraged cross-listing firms when they are paired with SC, and the financially more leveraged competitors have significantly positive impacts on the value of rival firm.
We also study the interaction relationship between capital structure and advertising investment in this article and have significant evidence on the financial leverage-return relation, and the advertising-return relation. The advertising expenditure can be seen as an aggressive competitive action of the firm. A financially leveraged firm may not support to finance for advertising against their competitors. Therefore, the constrained firms decrease with their advertising intensity. Conversely, advertising-intensive firms decrease with their financial constraints. We find the empirical relation between financial leverage and stock return, primarily among advertising-intensive firms. Moreover, advertising predicts returns only among financially less leveraged firms. This evidence suggests that the less financial constraint potentially has the positive advertising-return relation.
LITERATURE AND HYPOTHESES..8
2.1 Financial leverage...8
2.2 Competitive strategy...8
2.3 Advertising investment..12
3.1 Sample selection..16
3.2 Construction of competitive strategy measures.18
3.3 Variable definition...20
3.5 Summary statistics..22
4.1 Univariable tests results...26
4.1.1 Cross-listing announcement effect.26
4.1.2 Financial leverage..28
4.1.3 SS and SC...28
4.2 Multivariate OLS regression results.31
4.2.1 Cross-listing firms...31
4.2.2 Rival firms...35
4.3 Empirical analyses of advertising investment..39
4.3.1 Data and measures of financial constraints and advertising intensity...39
4.3.2 FM regressions..42
4.3.3 Portfolio analysis..50
184.108.40.206 Variation of the leverage-return relation with advertising...50
220.127.116.11 Variation of the advertising-return relation with financial Constraints...59
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