{"title":"Investment decisions and financial leverage under a potential entry threat","authors":"Shinsuke Kamoto","doi":"10.20472/BMC.2018.008.008","DOIUrl":"https://doi.org/10.20472/BMC.2018.008.008","url":null,"abstract":"This study examines investment and financing decisions of a pioneering firm and agency costs of debt in the presence of an entry threat by a potential competitor. It demonstrates that the over-investment problem demonstrated by Mauer and Sarkar (2005) remains in the presence of the potential entry threat. In addition, it demonstrates that when the pioneering firm increases leverage, a potential competitor expedites its market entry. Furthermore, high leverage creates the potential for inducing the competitor to enter the market in a downturn and exposing the pioneering firm to a risk of forced bankruptcy. Therefore, the potential entry threat hinders the pioneering firm from debt financing, and thus mitigates agency conflicts between shareholders and bondholders over investment decisions.","PeriodicalId":148341,"journal":{"name":"Journal of Banking & Finance","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116680202","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}