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

18 Pages Posted: 5 Jun 2013  

Manuel Ammann

University of St. Gallen - School of Finance

David Oesch

New York University (NYU) - Leonard N. Stern School of Business

Markus Schmid

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 2013

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 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.

Keywords: product market competition, corporate governance, firm valuation

Suggested Citation

Ammann, Manuel and Oesch, David and Schmid, Markus, Product Market Competition, Corporate Governance, and Firm Value: Evidence from the EU Area (June 2013). European Financial Management, Vol. 19, Issue 3, pp. 452-469, 2013. Available at SSRN: https://ssrn.com/abstract=2274563 or http://dx.doi.org/10.1111/j.1468-036X.2010.00605.x

Manuel Ammann (Contact Author)

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

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Oesch

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

Markus Schmid

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

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