INCREASED DEBT AND INDUSTRY PRODUCT MARKETS - AN EMPIRICAL-ANALYSIS

This paper tests for changes in firms' production and pricing decision s in four industries in which firms have sharply increased their finan cial leverage. The analysis of product price and quantity data shows t hat industry product market decisions are associated with capital stru cture. In three industries, output is negatively associated with the a verage industry debt ratio. In the one industry which shows a positive association between output and debt ratios, rival firms have low fina ncial leverage and entry barriers are relatively low. Analysis of exec utive compensation data supports the hypothesis that managers' incenti ves to maximize shareholders' wealth increase following recapitalizati on.