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

European Financial Management, 19 (3), 2013, pp. 452-469

29 Pages Posted: 28 Feb 2011 Last revised: 19 Jan 2016

Manuel Ammann

University of St. Gallen - School of Finance

Markus M. Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

David Oesch

University of Zurich

Multiple version iconThere are 2 versions of this paper

Date Written: April 14, 2011

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.

Keywords: Product Market Competition, Corporate Governance, Firm Valuation

JEL Classification: G34, G38, L1

Suggested Citation

Ammann, Manuel and Schmid, Markus M. and Oesch, David, Product Market Competition, Corporate Governance, and Firm Value: Evidence from the EU-Area (April 14, 2011). European Financial Management, 19 (3), 2013, pp. 452-469. Available at SSRN: https://ssrn.com/abstract=1771622 or http://dx.doi.org/10.2139/ssrn.1771622

Manuel Ammann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Markus M. Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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