Competition and Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange

41 Pages Posted: 17 May 2001

See all articles by Irena Grosfeld

Irena Grosfeld

Paris School of Economics

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Date Written: March 2001

Abstract

In this paper we analyze the impact of product market competition and ownership structure on corporate performance. We focus on the firms listed on the Warsaw Stock Exchange, which are either privatised or newly created firms. First, we study the separate effects of competition and ownership concentration on firm level productivity growth. Next, we investigate their interaction: are they substitutes or complements?

We take care of the crucial problem of potential endogeneity of explanatory variables by using GMM estimators proposed by Arellano and Bond (1991). We also control for several types of selection bias that could affect the productivity levels. Moreover, we control for industry fixed effects affecting the rate of growth of productivity. Our results show that product market competition has a positive and significant impact on performance. Concerning the effect of ownership concentration, we find a U-shaped relationship with performance. Firms with relatively dispersed ownership (no shareholder with more than 20 per cent of voting shares) and firms, in which one shareholder has more than 50 per cent of voting shares, have higher productivity growth than firms with an intermediate level of ownership concentration. This correlation between concentration of ownership and productivity growth is not explained by the type of the controlling shareholder. Finally, product market competition and good governance tend to reinforce each other rather than to be substitutes. Competition has no significant effect on performance for the firms with "poor" governance; on the contrary, it has significant positive effect in the case of firms with "good" corporate governance.

JEL Classification: D24, G32, L1, P2

Suggested Citation

Grosfeld, Irena and Tressel, Thierry, Competition and Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange (March 2001). William Davidson Institute Working Paper No. 369. Available at SSRN: https://ssrn.com/abstract=268634 or http://dx.doi.org/10.2139/ssrn.268634

Irena Grosfeld (Contact Author)

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014
France

Thierry Tressel

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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