Does product market competition affect corporate governance? Evidence from corporate takeovers |
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| Institution: | 1. KAIST College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegi-Ro, Dongdaemoon-Gu, Seoul 130-722, Korea;2. Samsung Electronics, 129 Samsung-Ro, Yeongtong-Gu,Suwon-Si, Gyeongi-Do 443-742, Korea;1. Richard E. Jacobs Chair in Finance, Kelley School of Business, Indiana University, 1309 E 10th Street HH6100, Bloomington, IN 47405-1701, USA;2. The Wharton School, University of Pennsylvania, 3620 Locust Walk, 2455 SHDH, Philadelphia, PA 19104, USA;3. E.J. Ourso College of Business, Louisiana State University, Baton Rouge, LA 70803, USA;1. The Hong Kong Polytechnic University SPEED, Hong Kong;2. University of Western Australia, Australia;3. Murdoch University, Australia;4. Sun Yat-Sen Business School, The Center for Accounting, Finance and Economics, Sun Yat-Sen University, PR China |
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| 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. |
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| Keywords: | Corporate governance Product market competition Takeover |
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