Leverage and strategic preemption: Lessons from entry plans and incumbent investments

• 成果类型: Article
• 署名作者: Cookson, J. Anthony
• 署名单位: University of Colorado System; University of Colorado Boulder
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2016.11.005
• 发表日期: 2017
• 页码: 292-312
• 关键词: Leverage; Entry threats; preemption; financial constraints; Casino industry

摘要

This paper empirically investigates the effect of leverage on strategic preemption. Using new data on entry plans and incumbent investments from the American casino industry, I find that high leverage prevents incumbents from responding to entry threats. Facing the same set of entry plans, low-leverage incumbents expand physical capacity (by 30%), whereas high-leverage incumbents do not. This difference in investment matters because capacity installations preempt eventual entry. Stock market reactions to withdrawn plans imply that effective preemption increases incumbent firm value by 5%. My findings suggest that leverage matters for industry composition, not just firm-level investment. (C) 2016 Elsevier B.V. All rights reserved.