Does product market competition affect corporate governance? Evidence from corporate takeovers

Frederick Dongchuhl Oh, Sean Seunghun Shin

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

Abstract

We examine the extent to which shareholders strategically allow a weak governance structure in response to increasing competition pressures in the product market. We treat acquisitions by rival firms as shocks that increase threats in a competitive product market. We find that firms adopt greater entrenchment provisions when there are greater competition threats. Moreover, firms with high institutional ownership–especially by dedicated investors–and board independence within the compensation committee are particularly aggressive, which is consistent with our theory that aggressive behavior represents a strategic decision by shareholders. Finally, we find positive relationship between the adoption of entrenchment provisions and firm’s future performance, but only for the adoption under relatively severe competitive pressures.
Original languageEnglish
Pages (from-to)68-87
Number of pages20
JournalJOURNAL OF EMPIRICAL FINANCE
Volume59
Early online date21 Sep 2020
DOIs
Publication statusPublished - Dec 2020
MoE publication typeA1 Journal article-refereed

Keywords

  • Corporate governance
  • Product market competition
  • Takeover

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