Finance Seminar（2019-09)

Topic: Endogenous Competition and Defaultable Bonds

Speaker: Yan Ji, Hong Kong University of Science and Technology

Time: Wednesday, 13 March, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

We develop a structural corporate model with supergames of price competition to demonstrate the rich interaction between product market competition, firms' financial conditions, and the macroeconomic environment. In our model, firms compete more fiercely in recessions through price undercutting, resulting in low cash flows and high default risks. The high default risks induce more intense competition in product markets, further reducing profit margins and cash flows. This feedback mechanism between product market competition and financial distress increases credit risks and generates high credit spreads. Our model offers a number of intriguing implications. For example, even under implicit collusion, the financially strong firm may appear to implement "predatory pricing" to compete with the financially weak firm.

Introduction:

Yan Ji’s research focus lies at the intersection of finance, macroeconomics, and industrial organization. In particular, he is interested in developing structural corporate and asset pricing models to understand stock returns and credit risks in the presence of imperfectly competitive product markets, limited commitment, and financing frictions. Professor Ji joined the Hong Kong University of Science and Technology in 2017 as an assistant professor of finance. He received his B.Eng. from the Department of Automation at Tsinghua University, and his Ph.D. from the Department of Economics at MIT.

//www.yan-ji.net/#home

Your participation is warmly welcomed!