The relationship between capital structure and product market competition in US listed firms

This study measures the effect of competition on leverage using unbalanced panel data from 4,957 US listed firms within 8 industries. To address the issues associated with concentration indexes, we contribute to the literature by using a new measure of competition – the Boone indicator which is based on efficiency. Initially results indicate a positive (negative) effect of competition (concentration) on leverage. Due to the distorting effect of the recent financial crisis, the sample was split into two sub-periods. From this it was determined that competition has a significant negative effect on capital structure when measured with the BI which is a theoretically robust proxy for competition. Accounting for non-linearity does not produce any significant results