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Corporate Governance, Product Market Competition, and Equity Prices
Author(s) -
GIROUD XAVIER,
MUELLER HOLGER M.
Publication year - 2011
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01642.x
Subject(s) - inefficiency , corporate governance , enterprise value , equity (law) , economics , product market , market value added , value (mathematics) , productivity , business , monetary economics , microeconomics , industrial organization , finance , macroeconomics , machine learning , incentive , political science , computer science , law
This paper examines whether firms in noncompetitive industries benefit more from good governance than do firms in competitive industries. We find that weak governance firms have lower equity returns, worse operating performance, and lower firm value, but only in noncompetitive industries. When exploring the causes of the inefficiency, we find that weak governance firms have lower labor productivity and higher input costs, and make more value‐destroying acquisitions, but, again, only in noncompetitive industries. We also find that weak governance firms in noncompetitive industries are more likely to be targeted by activist hedge funds, suggesting that investors take actions to mitigate the inefficiency.