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Product Market Competition, Corporate Governance, and Firm Value: Evidence from the EU Area
Author(s) -
Ammann Manuel,
Oesch David,
Schmid Markus M.
Publication year - 2013
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2010.00605.x
Subject(s) - corporate governance , valuation (finance) , product market , enterprise value , industrial organization , business , robustness (evolution) , competition (biology) , market value , economics , european union , microeconomics , accounting , international trade , finance , incentive , gene , ecology , biochemistry , chemistry , biology
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 US‐centred 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 maximise 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 .