Competition under financial distress

Research output: Contribution to journalArticle

27 Scopus citations

Abstract

This paper presents a link between product market competition and the financial situation - in particular asset composition - of firms, based on capital market imperfections. Consistent with the popular view, the model shows that firms under financial distress use aggressive pricing to generate cash. Firms resort to aggressive pricing in order to reshape their asset composition between non-liquid and liquid assets when new information renders their current composition non-optimal. In contrast to the vast literature on inventories that has given little attention to pricing, the model links pricing and inventory behavior. Low pricing is used as a source of internal funding.

Original languageEnglish (US)
Pages (from-to)309-324
Number of pages16
JournalJournal of Industrial Economics
Volume44
Issue number3
DOIs
StatePublished - Jan 1 1996

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Economics and Econometrics

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