Product market competition and the value of corporate cash: Evidence from trade liberalization

Azizjon Alimov

Journal of Corporate Finance, 2014, vol. 25, issue C, 122-139

Abstract: This paper uses the 1989 Canada–U.S. Free Trade Agreement as a source of exogenous variation in product markets to establish the impact of increased competition on the market valuation of corporate cash reserves. I find that the trade liberalization leads to a significant increase in the value of cash for firms experiencing a larger shock to their competitive environment. The impact of the trade liberalization is stronger among firms that face greater risk of losing investment opportunities to rivals. I also show that these inferences about the valuation effect of competition apply more broadly to a large sample of firms.

Keywords: Competition; Trade liberalization; Cash holdings; Firm value (search for similar items in EconPapers)
JEL-codes: D43 F14 F15 G32 G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:25:y:2014:i:c:p:122-139

DOI: 10.1016/j.jcorpfin.2013.11.011

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