Investment efficiency and product market competition

Neal M. Stoughton*, Kit Pong Wong, Long YI

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    47 Citations (Scopus)

    Abstract

    Does more competition lead to more information production and greater investment efficiency? This question is largely unexplored in the finance literature. This article provides both a model and a series of extensive empirical tests. The model features a 2-stage Bayesian game in differentiated products market competition. We find that competition causes firms to acquire less information and investments to become more inefficient relative to a first-best case with the same market structure. Empirically, the panel regression analysis provides strong support for the theory and shows that investment is more efficient in concentrated industries.

    Original languageEnglish
    Pages (from-to)2611-2642
    Number of pages32
    JournalJournal of Financial and Quantitative Analysis
    Volume52
    Issue number6
    DOIs
    Publication statusPublished - 1 Dec 2017

    Scopus Subject Areas

    • Accounting
    • Finance
    • Economics and Econometrics

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