Handbook of Empirical Corporate Finance

Chapter 13 CAPITAL STRUCTURE AND CORPORATE STRATEGY

CHRIS. PARSONS

McGill University

SHERIDAN. TITMAN

University of Texas

Contents

Abstract

1. Introduction

2. Endogeneity

3. The determinants of capital structure choice

3.1. Debt and the firm–worker relationship

3.2. Debt and the firm–customer relationship

3.3. Debt and competition

4. Conclusion

References

Abstract

In this chapter we review and discuss empirical studies that examine how a firm’s financing choice affects its strategic decisions and relationships with its nonfinancial stakeholders, such as its customers or workforce. Generally, high leverage appears to inhibit a firm’s ability or willingness to compete aggressively, especially against wellfinanced competitors. Debt also ...