Does Product Market Competition Affect Corporate Governance? Evidence from Corporate Takeovers

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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.
Publisher
Elsevier BV
Issue Date
2020-12
Language
English
Citation

Journal of Empirical Finance, v.59, no.C, pp.68 - 87

ISSN
0927-5398
DOI
10.1016/j.jempfin.2020.09.001
URI
http://hdl.handle.net/10203/276621
Appears in Collection
MT-Journal Papers(저널논문)
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