Corporate equity ownership, investment, and product market relationships |
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Authors: | Matthew J. Clayton Bjorn N. Jorgensen |
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Affiliation: | aDepartment of Finance, Kelley School of Business, Indiana University, 1309 E. 10th Street, Bloomington, IN 47405-1701, United States;bUniversity of Colorado at Boulder, Leeds School of Business, 419 UCB, Boulder, CO 80309-0419, United States |
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Abstract: | This paper examines the effect of corporate equity ownership on investment when firms have product market relationships. Firms have incentives to hold long equity positions when their products are complements. These equity positions induce the firms to increase their real investment expenditures. In contrast, firms have incentives to hold short equity positions when their products are substitutes. These short positions commit the firms to a more aggressive product market stance, and also result in increased real investment expenditures. Our model offers an explanation for the empirical relationship between the establishment of corporate equity stakes and increased investment spending documented by Allen and Phillips (2000). |
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Keywords: | JEL classification: G31 G32 L13 D43 |
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