Unraveling the Impact of Product Market Competition and Earnings Volatility on Zero Leverage Policies

This thesis investigates the relationship between product market competition and zero leverage behavior within firms, aiming to uncover how these dynamics interact. Additionally, it explores whether firms characterized by higher earnings volatility exhibit a more pronounced positive relationship between product market competition and the likelihood of adopting a zero-leverage strategy. To carry out this investigation, we employed product market competition data (Fluidity) from the Hoberg-Phillips Data Library and financial data from the Compustat (North America) database, spanning from 1989 to 2019. As product market competition intensifies, the probability of firms adopting a zero leverage policy increases. Furthermore, our research illuminates that the positive impact of heightened product market competition on the likelihood of zero leverage policies is accentuated in firms characterized by elevated levels of earnings volatility. This finding corroborates our initial hypothesis, substantiating the notion that increased competition significantly influences a company's earnings volatility. We also strengthened our analysis with insights from existing literature, underscoring how heightened earnings volatility intensifies the propensity to embrace a zero leverage policy. This study contributes insights to the literature, notably as the first to employ the interaction term between product market competition and earnings volatility in exploring these financial dynamics.

Grantor dc:publisher

Université d'Ottawa / University of Ottawa

Year dc:date

2023

Author dc:creator

• Rahimzadeh, Alireza

Contributors dc:contributor

• Chkir, Imed

• product market competition
• zero-leverage firms
• earnings volatility
• risk

Statement dc:rights

• Attribution-NoDerivatives 4.0 International

Licence

• http://creativecommons.org/licenses/by-nd/4.0/

Language dc:language

en

Identifier

http://dx.doi.org/10.20381/ruor-29842

OAI identifier oai:identifier

oai:ruor.uottawa.ca:10393/45638