Influence of industry environment on firms’ characteristics

This study reviews the connection between a firm's financing decisions and the industry environment; i. e., the industry structure as well as product market competition. According to existing research, firms should prepare themselves to maintain an investment capacity particularly in concentrated, growing, and volatile industry settings, where investments are uncertain or can have a strategic value. These required adaptations to the industry environment should furthermore lead to a changed investment behavior and return expectations. However, the integrated empirical analysis of all these aspects in one coherent study was missing in the literature to date. These finding can be relevant for both academics as well as practitioners. For academics to reflect the role of the industry environment for their own research particular in corporate finance and industrial economics. And for practitioners - as well as shareholders and supervising bodies - this work will increase the understanding of more subtle and indirect relationships, particularly that cash is no negative debt.