【思源论坛第142讲】Victor Song：Financial Structure and Oligopoly

主讲人简介

Financial structure is an important decision forfirms, and varies significantly across industries. Capital intensive industriessuch as manufacturing, which have substantial physical assets, tend to haverelatively high debt-equity ratios. In contrast, research intensive industries,such as high tech sector, issue much less debt. Conventional wisdomis financial distress costs are themost important factorfor this variation. Firms with more uncertain prospects might seek to minimizethe chance of financial distress by keeping debt levels low. However, thehigh-tech giants with very low debt to equity ratios such as Google, Microsoft,and others do not seem vulnerable to financial distress risk. We offer analternative theory to explain why financial structure varies across industriesby focusing on the relationship between financial structure and R&D in anoligopoly context. There are two distinct types of R&D -- process R&D,which lowers the cost of producing a given product, and product R&D, whichchanges product characteristics and/or improves product quality. Our keyinsight is process R&D is complementary with the strategic use of debt toimprove a firm's market position. As in Brander and Lewis (1986), firms have anincentive to use debt to commit themselves to a more aggressive position.Process R&D strengthens this effect. Product R&D weakens head-to-headcompetition by increasing product differentiation, and reduces the incentive touse debt for strategic purposes. As manufacturing industries make more use ofprocess R&D, while high-tech industries undertake more product R&D, weexplain why financial structure varies significantly across industries.