Financial conditions, local competition, and local market leaders : The case of real estate developers

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Number of pages63
Journal / PublicationPacific Economic Review
Online published3 Jun 2021
Publication statusOnline published - 3 Jun 2021

Abstract

This paper studies whether (and how) corporate decisions are affected by internal factors (e.g., the financial conditions of own company) and external factors (e.g., the actions of local competitors) in an imperfectly competitive environment. We study the listed real estate developers in Beijing as a case study. Our hand-collected dataset includes transaction-level information booked indicators (e.g., profitability, liability, and liquidity) and unbooked financial indicators (political connections). Our multi-step empirical model shows that both the firm's financial conditions and its competitors' counterparts are essential but play different roles in the output design, pricing, and the time-on-the-market (TOM). Internal versus external factors' relative importance relates nonlinearly to the degrees of market concentration. Market leaders' existence alters the small firms' strategy and leads to higher selling prices and slower selling pace in the local market. Our comprehensive financial indicators (booked and unbooked) better predict corporate behaviors than traditional measures.