Keywords
innovation
monopoly debater
corporate finance
commitment
How to Cite
Abstract
Purpose – This paper highlights the interaction between innovation
and financial structure under duopoly with a monopoly debater.
Design/methodology/approach – By game-theory approaches, we
characterize effects of debt levels on innovative investment with limited
liability effect.
Findings – This paper argues that higher debt levels increase both
innovative investment and output. Both higher debt rate and higher
debt levels act as commitment to reduce opponent firms’ net profits.
Net profit for unit debt is reduced with higher debt level and higher
debt rate.
Originality/value – This study extends Brander and Lewis’s (1986) to
innovative situation and no interior point solution is restricted.
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