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Market concentration measures and investment decisions in Mexican manufacturing firms.

Ruiz-Porras, Antonio and Lopez-Mateo, Celina (2010): Market concentration measures and investment decisions in Mexican manufacturing firms. Forthcoming in: Accounting and Taxation

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Abstract

We study how different measures of market concentration may explain investment decisions of Mexican manufacturing firms. The measures include the Herfindahl-Hirschman Index and the Dominance one. The first one is the traditional measure of market structure concentration. The Dominance Index is a competition measure used by Mexican regulators. The econometric assessments suggest that investment decisions of Mexican firms can be better explained by the Dominance Index measure than by the Herfindahl-Hirschman one. Thus our results suggest that the Mexican Dominance Index might be useful as a measure of market structure and competition. They also suggest that market concentration reduces investment. Such conclusions are based on several econometric assessments. In all cases we use certain characteristics of the firms (size, cash flows, investment opportunities and capital intensity) as control variables.

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