Industry Structure of Debt and Market Share Leadership Persistence

Abstract

This study investigates the relationship between the industry structure of debt and market share leadership persistence using a large sample of firms spanning the years 1961-2012. We construct unique variables that measure the structure of industry leverage and conduct tests for the relationship between these variables and the likelihood that firms retain market share leadership from year to year. Results show that firms in industries with high capital structure diversity are more likely to maintain market share leadership over time, indicating that heterogeneity in capital structure among industry incumbents facilitates the strategic use of leverage to secure and maintain a leadership position. We also find that firms with higher and more stable leverage ratios are more likely to maintain their leadership, suggesting that firms use debt financing to invest in market share growth. The results highlight the importance of firm- and industry-level debt structures in product market leadership positioning and provide a new perspective on intra-industry rivalry.