Does Product Market Competition Discipline Managers? Evidence from Exogenous Trade Shock and Corporate Acquisitions
American Finance Association (2015) Meeting
48 Pages Posted: 18 Jan 2014 Last revised: 4 May 2017
Date Written: December 10, 2013
This study uses the 1989 Canada-U.S. Free Trade Agreement as a source of exogenous shock to product markets to establish a causal effect of competition on acquisition returns to shareholders. Following the agreement, acquirers exposed to greater increases in competitive pressure experience higher announcement returns. The positive impact of increased competition is stronger in acquirers with relatively higher agency costs. Managers of acquirers facing more competition are more likely to be terminated following value-destroying acquisitions. These results suggest that intensifying competition positively influences the efficiency of managerial decisions.
Keywords: Mergers and acquisitions, Trade Liberalization, Competition, Governance
JEL Classification: F13, G34, L1
Suggested Citation: Suggested Citation