N°24-45: Beyond Peers: Cross-Industry Competition and Strategic Financing

Corporate financial leverage within competition networks is determined by both direct and indirect competitors. Using data on firms’ self reported competitors, we identify eleven stable competition communities within the U.S. economy, where firms are grouped into communities based on competitive interactions both within and across industries. We find a strong complementarity between a firm’s leverage and that of its community members, consistent with strategic interactions with both immediate peers and chain effects from the propagation of shocks affecting indirect peers. To achieve identification, we employ a granular instrumental variable approach. Our results highlight that firms’ financial strategies are shaped not only by direct competition but also by the broader competitive environment.