Do Product Market Threats Discipline Corporate Misconduct?

61 Pages Posted: 18 Apr 2023 Last revised: 9 Jan 2024

See all articles by Jie Chen

Jie Chen

Leeds University Business School, University of Leeds

Xunhua Su

Norwegian School of Economics (NHH)

Xuan Tian

Tsinghua University - PBC School of Finance

Bin Xu

University of Leeds

Xiaoyu Zhang

Vrije Universiteit Amsterdam (VU Amsterdam)

Date Written: January 5, 2024

Abstract

Firms with more competitive threats from the product market are less likely to commit violations and pay lower penalties. Further analyses reveal that the disciplining effect of competition is more pronounced when managers have greater incentives to shirk and internal governance is weaker, and that violations are associated with poor product market performance only in the presence of competitive pressure. Firms under competitive pressure are more likely to adopt ESG-related incentives in executive compensation contracts and exhibit better worker safety practices. Our evidence suggests product market threats reduce managerial slack in combating misconduct by increasing the expected damage of violations.

Keywords: Product market threats; Market competition; Corporate governance; Corporate misconduct

JEL Classification: G30; G34; L10; D22

Suggested Citation

Chen, Jie and Su, Xunhua and Tian, Xuan and Xu, Bin and Zhang, Xiaoyu, Do Product Market Threats Discipline Corporate Misconduct? (January 5, 2024). Leeds University Business School Working Paper, Available at SSRN: https://ssrn.com/abstract=4413274 or http://dx.doi.org/10.2139/ssrn.4413274

Jie Chen (Contact Author)

Leeds University Business School, University of Leeds ( email )

Leeds LS2 9JT
United Kingdom

HOME PAGE: http://https://business.leeds.ac.uk/about-us/our-people/staff-directory/profile/jie-chen-1/

Xunhua Su

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://sites.google.com/site/xunhuasu/

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Bin Xu

University of Leeds ( email )

Leeds
United Kingdom

Xiaoyu Zhang

Vrije Universiteit Amsterdam (VU Amsterdam) ( email )

De Boelelaan 1105
Amsterdam, North Holland 1081 HV
Netherlands

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