How Does Industry Affect Firm Financial Structure?

By Peter Mackay, Gordon M. Phillips. 2005

820 citations recorded by the source corpus.

We examine the importance of industry to firm-level financial and real decisions. We find that in addition to standard industry fixed effects, financial structure also depends on a firm's position within its industry. In competitive industries, a firm's financial leverage depends on its natural hedge (its proximity to the median industry capital--labor ratio), the actions of other firms in the industry, and its status as entrant, incumbent, or exiting firm. Financial leverage is higher and less dispersed in concentrated industries, where strategic debt interactions are also stronger, but a firm's natural hedge is not significant. Our results show that financial structure, technology, and risk are jointly determined within industries. These findings are consistent with recent industry equilibrium models of financial structure. Copyright 2005, Oxford University Press.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/228e4c6f97ff36e2a35edf60e55a619a8fe25b22

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Citations in the corpus

Real Assets and Capital Structure (2013, neutral): “The list of instruments also includes information on industrial workforce, which affects capital/labor ratios and the demand for fixed assets (MacKay and Phillips (2005), Garmaise (2008)).”
A Note on the Practice of Lagging Variables to Avoid Simultaneity (2013, neutral): “…Buch, Koch, and Koetter (2013); Clemens, Radelet, Bhavnani and Bazzi (2012); Cornett, Marcus, Saunders, and Tehranian (2007); Green Malpezzi, and Mayo (2005); Gupta (2005); Hayo, Kutan, and Neuenkirch (2010); MacKay and Phillips (2005); Spilimbergo (2009); Stiebala (2011); and Vergara (2010).”
The influence of product market dynamics on a firm's cash holdings and hedging behavior (2007, neutral): “a firm’s capital-to-labor ratio from the median ratio for its industry, as defined by MacKay and Phillips (2005). As discussed in Section 3.”
What do we know about the capital structure of small firms? (2012, neutral): “3 Morck et al. (2000) show that stock prices move together more in poor economies than in rich ones—country factors Footnote 3 continued matter more for firm stock price in poor markets.”
The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions (2008, positive): “Consistent with the findings of Titman and Wessels (1988) and Mao (2003), the effect of non-debt tax shields on market leverage is positive.”
The spillover effects of MD&A disclosures for real investment: The role of industry competition (2019, methodology): “Yet, the additional investment may also be inefficient: managers who are entrenched or overconfident can use a rise in demand to justify investing in weak divisions or postponing divesting poorly performing assets (Scharfstein and Stein, 2000; Malmendier and Tate, 2005; Pan et al., 2016).”
Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings (2010, positive): “Following MacKay and Phillips (2005), I collect four-digit SIC industry concentration ratios (Herfindahl-Hirschman Index, HHI) from the Census of Manufacturers for the years 1982, 1987, 1992 and 1997.20 The Census of Manufacturers reports these ratios every 5 years.”