forthcoming Review of Financial Studies, 1997
This paper examines whether capital structure decisions interact with product market characteristics to influence plant closing and investment decisions. The empirical evidence in this paper shows that a firrn's capital structure, plant level efficiency, and industry capacity utilization are significant determinants of plant (dis)investment decisions. We find that the effects of high leverage on investment and plant closing are significant when the industry is highly concentrated. Following their recapitalizations, firrns in industries with high concentration are more likely to close plants and less likely to invest. In addition, we find that rival firrns are less likely to close plants and more likely to invest when the market share of leveraged firms is higher.
* Krannert School of Management, Purdue University and the Tinbergen Institute Rotterdarn, guest510@sun01.tir.few.EUR.NL
**University of Maryland College of Business and Management, gphillips@rhsmith.umd.edu.
FirstDraft 11/15/93
This Version 12/16/96
Comments Welcome
Correspondence to: Gordon Phillips. College of Business, University of Maryland. College Park,
MD. 20742, USA, (301) 405-0347.
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