Essays on financial policy, liquidation values and product markets

The second model deals with entry and pre-emption. We show that a firm may willingly adopt a technology with a potentially high liquidation cost - i.e. with a low liquidation value - because that commits it to stay in the market after bad performance (because it reduces the value of its option to exit), thereby preventing its rival from engaging in predatory practices. Finally, we investigate the incentives of managers to liquidate inefficient divisions. We show that if liquidation conveys negative information about managerial performance, managers will be reluctant to liquidate, and it may not be possible to design any compensation contract that induces them to follow the efficient decision. The second part of this dissertation is an empirical investigation into the influence of product market competition on capital structure. We analyse firms competing in large markets, in dominated markets and in strategic markets (price and quantity competition). We find that small firms with a dominant rival tend to have lower debt levels than small firms in large industries, and that the type of strategic interaction also affects capital structure as predicted by theory.