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

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.