We examine how product market threats influence firm payout policy and cash holdings. We develop new measures of competitive threats using firms' product text descriptions. Our primary measure, product market fluidity, captures changes in rival firms' products relative to the firm's products. We...

We show that firms with more illiquid real assets have a higher cost of capital. This effect is stronger when real illiquidity arises from lower within-industry acquisition activity. Real asset illiquidity increases the cost of capital more for firms that face more competition, have less access...

We provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in...