Does Corporate Governance Matter in Competitive Industries?

Giroud, Xavier; Mueller, Holger M.

Download This Paper

Open PDF in Browser

Add Paper to My Library

Does Corporate Governance Matter in Competitive Industries?

NBER Working Paper No. w14877

44 Pages Posted: 20 Apr 2009 Last revised: 27 Aug 2022

See all articles by Xavier Giroud

Xavier Giroud

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 5 versions of this paper

Date Written: April 2009

Abstract

By reducing the threat of a hostile takeover, business combination (BC) laws weaken corporate governance and increase the opportunity for managerial slack. Consistent with the notion that competition mitigates managerial slack, we find that while firms in non-competitive industries experience a significant drop in operating performance after the laws' passage, firms in competitive industries experience no significant effect. When we examine which agency problem competition mitigates, we find evidence in support of a "quiet-life" hypothesis. Input costs, wages, and overhead costs all increase after the laws' passage, and only so in non-competitive industries. Similarly, when we conduct event studies around the dates of the first newspaper reports about the BC laws, we find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant stock price impact.

Suggested Citation: Suggested Citation

Giroud, Xavier and Mueller, Holger M., Does Corporate Governance Matter in Competitive Industries? (April 2009). NBER Working Paper No. w14877, Available at SSRN: https://ssrn.com/abstract=1391824