Corporate Governance, Product Market Competition and Equity Prices

Posted: 21 Apr 2010

See all articles by Holger M. Mueller

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)

Multiple version iconThere are 4 versions of this paper

Date Written: April 21, 2010

Abstract

This paper examines whether firms in non-competitive industries benefit relatively more from good governance than do firms in competitive industries. Consistent with this hypothesis, we find that weak governance firms, as measured by the G-index, have lower equity returns, worse operating performance, and lower firm value, but only so in non-competitive industries. When we examine the nature of the underlying agency cost, we find that weak governance firms have lower labor productivity, higher input costs, and make more value-destroying acquisitions, but, again, only so in non-competitive industries. We also find that weak governance firms in non-competitive industries are more likely to be targeted by activist hedge funds, suggesting that investors are taking actions to mitigate the inefficiency.

Keywords: Corporate Governance, Product Market Competition

JEL Classification: G34

Suggested Citation

Mueller, Holger M., Corporate Governance, Product Market Competition and Equity Prices (April 21, 2010). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1593671

Holger M. Mueller (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
New York, NY 10012-1126
United States
212-998-0341 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~hmueller/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Register to save articles to
your library

Register

Paper statistics

Abstract Views
705
PlumX Metrics