Do Firms Strategically Announce Capacity Expansions in Response to Heightened Entry Threats?

48 Pages Posted: 15 Jul 2018 Last revised: 7 Apr 2019

See all articles by Matthew J. Bloomfield

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Marcel Tuijn

Southern Methodist University (SMU); Erasmus University Rotterdam (EUR)

Date Written: March 26, 2019

Abstract

Using plausibly exogenous variation in Chinese imports, we provide evidence that firms strategically announce capacity expansions when facing entry threats. We first construct and validate a novel text-based measure of voluntary disclosure that reflects firms’ explicit forward-looking statements about capacity expansion plans. We then show that firms respond to heightened entry threats by announcing capacity expansions. Consistent with our predictions, larger firms are more likely to respond in this fashion, while more opaque firms are less likely to respond in this fashion. Our results cannot be explained by an overall increase in transparency/disclosure; we observe no increase overall disclosure. Thus, our results are unlikely to be driven by investors’ demand for information, but rather firms’ strategic choices to supply information in order to protect their product markets. Capacity expansion announcements appear to be effective at deterring entry.

Keywords: Voluntary Disclosure, Capacity, Entry, Oligopoly, International Trade

JEL Classification: G14, G31, G34, L10, M41

Suggested Citation

Bloomfield, Matthew J. and Tuijn, Marcel, Do Firms Strategically Announce Capacity Expansions in Response to Heightened Entry Threats? (March 26, 2019). Available at SSRN: https://ssrn.com/abstract=3195932 or http://dx.doi.org/10.2139/ssrn.3195932

Matthew J. Bloomfield (Contact Author)

The Wharton School of the University of Pennsylvania ( email )

1325 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA PA 19103-1724
United States
6073513042 (Phone)
6073513042 (Fax)

Marcel Tuijn

Southern Methodist University (SMU)

6212 Bishop Blvd.
Dallas, TX 75275
United States

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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