Finance research shows capital structure has an important effect on the product-market competitiveness of firms. Our paper documents an asymmetric effect of capital structure on firms’ competitiveness in a sample of Chinese firms. Firms whose capital structure is characterized by a low leverage but rapid leverage growth has a dominant position in their product market. The industry average leverage ratio is also a critical factor influencing firms’ competitiveness. High debt levels hinder firms’ competitiveness. The influence of capital structure on firms’ product-market competitiveness varies based on the extent of industry concentration. In highly concentrated industries, high leverage level and slow leverage growth suppress firms’ competitiveness to a larger extent compared with industries with low concentration.
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