TY - UNPB
T1 - The strategic use of debt reconsidered
AU - Haan, M.A.
AU - Toolsema-Veldman, Linda
N1 - Relation: http://som.rug.nl/
Rights: University of Groningen. SOM
PY - 2003
Y1 - 2003
N2 - Wanzenried (2003, International Journal of Industrial Organization 21(2), 171-200) considers a two-stage differentiated goods duopoly model with demand uncertainty linking firms’ capital structure choice to their output market decisions. Unfortunately, her analysis is flawed. We correct for this, and solve the model umerically to find some results that are qualitatively different from hers. First, in equilibrium, the use of debt always yields lower firm profits, i.e. even in the case of complements. Second, the equilibrium debt level decreases as demand becomes more volatile. We also discuss some problems with the debt contract commonly used in the strategic debt literature.
AB - Wanzenried (2003, International Journal of Industrial Organization 21(2), 171-200) considers a two-stage differentiated goods duopoly model with demand uncertainty linking firms’ capital structure choice to their output market decisions. Unfortunately, her analysis is flawed. We correct for this, and solve the model umerically to find some results that are qualitatively different from hers. First, in equilibrium, the use of debt always yields lower firm profits, i.e. even in the case of complements. Second, the equilibrium debt level decreases as demand becomes more volatile. We also discuss some problems with the debt contract commonly used in the strategic debt literature.
KW - product market competition
KW - Financial structure
M3 - Working paper
BT - The strategic use of debt reconsidered
PB - University of Groningen, SOM research school
CY - Groningen
ER -