Investment efficiency and product market competition

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 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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