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Product Market Competition, Corporate Governance, and Firm Value: Evidence from the EU-Area

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
   
type journal paper
   
keywords Product Market Competition, Corporate Governance, Firm Valuation
   
language English
kind of paper journal article
date of appearance 2013
journal European Financial Management
publisher Wiley-Blackwell Publishing (Oxford UK)
ISSN 1354-7798
ISSN (online) 1468-036X
DOI 10.1111/j.1468-036X.2009.00505.x
volume of journal 19
number of issue 3
page(s) 452-469
review double-blind review
   
citation Ammann, M., Oesch, D., & Schmid, M. (2013). Product Market Competition, Corporate Governance, and Firm Value: Evidence from the EU-Area. European Financial Management, 19(3), 452-469, DOI:10.1111/j.1468-036X.2009.00505.x.