Capital Structure and Market Power: Evidence from Thai Firms

Utilizing a sample of 223 non-financial Thai firms over an eight-year period from 1997-2004, we test the relationship between financing decisions and market power using Ordinary Least Squares (OLS) and fixed-firm effects regressions. Our results show a non-linear relationship between capital structure and market power. Specifically, we find the relationship between total debt and market power, and short-term debt and market power, to be U-shaped, while the relationship between long-term debt and market power exhibits an inverted U-shaped relation. We suggest that these non-linear relationships may result from opposing limited liability and predation effects in the product market.