When Does Competition Mitigate Agency Problems?
Copyright policy )When Does Competition Mitigate Agency Problems?
This paper examines how the performance correlation of firms in an industry affects the degree to which product market competition mitigates agency problems. Consistent with theory, I find that in industries with high firm performance correlation, product market competition reduces the adverse effect of business combination (BC) laws on firm operating performance, while in industries with low performance correlation competition does not have such an effect. I find similar results for stock prices when examining the stock market reactions to the first newspaper reports of BC laws. Overall, the disciplining effect of competition depends positively on an industry’s performance correlation.
- Singapore Management University Singapore
- University of Florida United States
Corporate governance, Finance and Financial Management, industry homogeneity, product market competition, anti-takeover laws
Corporate governance, Finance and Financial Management, industry homogeneity, product market competition, anti-takeover laws
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