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CORPORATE BONDS AND PRODUCT MARKET COMPETITION
Author(s) -
Platt Katarzyna
Publication year - 2020
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12220
Subject(s) - bond , corporate bond , competition (biology) , monetary economics , debt , business , bond market , product market , corporate debt , yield (engineering) , product (mathematics) , economics , financial system , finance , microeconomics , ecology , materials science , geometry , mathematics , metallurgy , biology , incentive
Abstract I examine the effect of product market competition on the yield spread of corporate bonds. I find that firms that face more competitive threats also face a higher cost of corporate bond debt. After controlling for common bond‐level, firm‐level, and macroeconomic variables, my results show that bondholders of firms that are subject to increased competition demand significantly higher credit spreads than holders of otherwise similar bonds. Furthermore, this effect is more pronounced for firms that have assets that are difficult to redeploy. Overall, my findings provide evidence that competitive threats are being reflected in corporate debt prices.