Easy Money and Competitive Industries’ Booms and Busts
Studies have documented that firms in competitive industries tend to invest inefficiently and suffer from booms and busts. We extend the literature by showing that high-sentiment signals from credit markets, an indication of easy money available, prompt firms in competitive industries to borrow and invest more than usual. The resulting excess investments collectively lead to overcapacity and, consequently, to declines in competing firms’ operating and financial performance. In contrast, we find that easy money does not lead to excess investments in consolidated industries. Our findings suggest that competitive industries’ booms and busts are largely driven by easy money from credit markets, and that (easy) financing contributes to their investment inefficiency problem
Year of publication: |
2023
|
---|---|
Authors: | Shang, Longfei ; Lin, Ji-Chai ; Yang, Nan |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Easy money and competitive industries' booms and busts
Shang, Longfei, (2023)
-
Does economic policy uncertainty drive the initiation of corporate lobbying?
Shang, Longfei, (2021)
-
Behavioral bias, distorted stock prices, and stock splits
Li, Fengfei, (2023)
- More ...