Product-market competitiveness and investor reaction to corporate governance failures
Lalatendu Misra and
International Review of Economics & Finance, 2017, vol. 48, issue C, 134-147
Is industry competition a substitute for the quality of corporate governance? If so, and if self-serving behavior by corporate executives at presumably well governed firms is a greater surprise to investors, then the price reaction to the news of governance failure should vary by the degree of competition prevailing in the firm's industry. For a sample of firms that backdated employee stock options, we find that firms operating in more competitive industries experienced significantly larger wealth declines upon revelation of the news of governance failure (backdating of stock option grants). We interpret our findings to suggest that the quality of corporate governance is less critical for firms operating in more competitive product markets since product market competition acts as an implicit substitute for the performance discipline imposed by high quality of corporate governance.
Keywords: Industry competition; Corporate governance; Market discipline; Option backdating (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:48:y:2017:i:c:p:134-147
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().