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

46 Pages Posted: 7 Aug 2001

See all articles by Irena Grosfeld

Irena Grosfeld

Paris School of Economics

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Date Written: July 2001

Abstract

In this Paper we analyse 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 and productivity growth. 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 and relatively concentrated ownership 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 act as substitutes. Competition has no significant effect on performance for the firms with 'poor' governance; on the contrary, it has a significant positive effect in the case of firms with 'good' corporate governance.

Keywords: Competition, corporate governance, productivity growth

JEL Classification: D24, G32, L10, P20

Suggested Citation

Grosfeld, Irena and Tressel, Thierry, Competition, Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange (July 2001). CEPR Discussion Paper No. 2888. Available at SSRN: https://ssrn.com/abstract=278565

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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