Capital structure and strategy in competitive markets: an empirical analysis of their relationship

Abstract

An extensive body of research has identified several determinants of capital structure. Several characteristics of the companies have been listed as factors influencing capital structure, eg, size, growth opportunities, profitability, tax shields and proportion of fixed assets. Some studies have examined the use of the financial structure as a strategic variable in competitive products market. However, there is little empirical evidence about effect of these conditions on the capital structure. The purpose of this research was to investigate the interaction between capital structure and competitive strategy in the market of goods and supplies. For this, it estimated a simultaneous equation model and the use of the methods of ordinary least squares (OLS), minimum tables in two stages (2SLS) and the generalized method of moments (GMM). The evidence found in this study confirm the influence of capital structure on competitive strategy in product markets and supplies and vice versa. This study also presents a contribution from a methodological point of view, given the novelty of the application of estimation methods 2SLS and GMM, to test the determinants of capital structure in the Brazilian market. The results are robust even from different operational definitions and econometric specifications.