We examine the importance of industry to firm-level financial and real decisions. We find that in addition to standard industry fixed effects, financial structure also depends on a firm's position within its industry. In competitive industries, a firm's financial leverage depends on its natural hedge (its proximity to the median industry capital-labor ratio), the actions of other firms in the industry, and its status as entrant, incumbent, or exiting firm. Financial leverage is higher and less

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... ispersed in concentrated industries, where strategic debt interactions are also stronger, but a firm's natural hedge is not significant. Our results show that financial structure, technology, and risk are jointly determined within industries. These findings are consistent with recent industry equilibrium models of financial structure. Despite extensive financial structure research since Myers (1984) and Harris and Raviv (1991) surveyed the literature, important questions remain about how financial structure is related to industry and about how real and financial decisions are related.