Product Market Competition, Corporate Governance, and Firm Value: Evidence from the EU-Area
Journal
European Financial Management
ISSN
1354-7798
ISSN-Digital
1468-036X
Type
journal article
Date Issued
2013
Author(s)
Abstract
This paper investigates whether the valuation effect of corporate governance depends on the degree of competition in the companies' product markets in a large international sample covering 14 countries from the European Union (EU). Besides providing external validity of previous U.S.-centered studies, this paper uses more comprehensive and reliable measures of both product market competition and corporate governance. Consistent with the hypothesis that product market competition acts as a substitute for corporate governance as competitive pressure imposes discipline on managers to maximize firm value, our results show that corporate governance significantly increases firm value in non-competitive industries only. When investigating the channels through which firm value may be increased, we find that good governance for firms in non-competitive industries leads them to have more capital expenditures, spend less on acquisitions and be less likely to diversify. Our results are robust to a large number of robustness checks including the use of alternative measures of competition and governance, as well as using alternative regression specifications.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1771622
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1771622
Language
English
Keywords
Product Market Competition
Corporate Governance
Firm Valuation
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Wiley-Blackwell Publishing
Publisher place
Oxford UK
Volume
19
Number
3
Start page
452
End page
469
Pages
18
Subject(s)
Eprints ID
72297
File(s)![Thumbnail Image]()
Name
F_EFM_Product Market Competition.pdf
Size
683.5 KB
Format
Adobe PDF
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