| dc.description.abstract | This dissertation consists of two standalone studies relating to product market competition, customer concentration and their effects on corporate performance.
The first study examines the impact of competition in the product market on firms’ leverage adjustments. While recent research provides evidence of both the bright and dark sides of competition, its impact on firms’ leverage adjustments is an open empirical question. Results provide evidence that competitive pressures from the product market accelerate the leverage speed of adjustment (SOA) toward target capital structure. I obtain consistent results for both over- and under-levered firms, which implies that competition helps lower the leverage adjustment costs and hence increases the SOA, irrespective of whether firms are over- or under-levered relative to their target leverage. To establish the causal effect of competitive threats on the SOA, I exploit a quasi-natural experiment provided by large import tariff reductions in the U.S. manufacturing sector, and find a significant increase in firms’ leverage adjustments after large tariff cuts. The additional analyses reveal that the impact of product market threats on leverage adjustments is more pronounced for firms with poor governance quality and unskillful managers. Overall, this study highlights the “bright side” of product market competition and suggests that agency conflicts between managers and shareholders are attenuated by intensified competition.
The second essay investigates the question of whether and how firm customer concentration impacts stock market liquidity. I hypothesize that to ensure supply-chain stability, principal customers increase incentives to monitor suppliers and exert influence on suppliers’ governance quality, thereby improving suppliers’ stock market liquidity. The empirical analyses document that firms with concentrated customer base are strongly and positively associated with narrower spreads. The main results are robust to a variety of model specifications and endogeneity concerns, and alternative proxies for stock liquidity. Further tests show that the increase in liquidity is mainly driven by supplier governance quality and customer bargaining power. In addition, I find evidence of economic benefits associated with the favorable effect of customer concentration along the supply chain. Customers’ monitoring efforts help reduce discretionary expenses, decrease default risk, and enhance firm value of both customers and suppliers. Overall, the findings from this chapter suggest that principal customers have strong incentives to monitor suppliers to keep their suppliers healthy, thereby gaining benefit from stable supply chain. | en_US |