Product market threats and leverage adjustments

Trung K. Do, Henry Hongren Huang, Puman Ouyang

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


This research examines the effect of product market threats on firms’ leverage adjustments. We find that competitive pressures from the product market accelerate the leverage speed of adjustment (SOA) toward the target capital structure. To establish the causal effect of competitive threats on SOA, we exploit a quasi-natural experiment provided by large import tariff reductions in the U.S. manufacturing sector and show a significant increase in firms’ leverage adjustments after large tariff cuts. The impact of product market threats on leverage adjustments is more pronounced for firms with poor governance quality and exposed to product market threats. Finally, to the extent that reaching the target capital structure enhances firm value, we note that the faster SOA following competition translates into higher firm value. Overall, our study highlights the “bright side” of product market competition and suggests that agency conflicts between managers and shareholders are attenuated by intensified competition.

Original languageEnglish
Article number106365
JournalJournal of Banking and Finance
StatePublished - Feb 2022


  • Leverage Adjustments
  • Product market threats
  • SOA
  • Tariff reduction


Dive into the research topics of 'Product market threats and leverage adjustments'. Together they form a unique fingerprint.

Cite this