Does product market competition discipline managers? Evidence from exogenous trade shock and corporate acquisitions

Azizjon Alimov ()
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Azizjon Alimov: IESEG School of Management, LEM-CNRS UMR 9221

No 2021-ACF-05, Working Papers from IESEG School of Management

Abstract: This paper uses the 1989 Canada-U.S. Free Trade Agreement (FTA) to study the effect of increased foreign competition on the efficiency of corporate acquisition decisions. Following the FTA, U.S. acquirers exposed to greater increases in competitive pressure experience higher announcement returns. The positive impact of increased competition is stronger in acquirers with relatively higher agency costs prior to the FTA. Managers of acquirers exposed to greater foreign competition are more likely to be terminated following value-destroying acquisitions. Overall, these results are consistent with an active role for product market competition in disciplining managers with respect to important investment decisions. These results have broader implications: a rise in foreign competition can potentially improve the efficiency of key managerial decisions.

Keywords: Trade Liberalization; Mergers and acquisitions; Competition; Governance. (search for similar items in EconPapers)
JEL-codes: D43 F13 G34 (search for similar items in EconPapers)
Pages: 49
Date: 2021-08
New Economics Papers: this item is included in nep-cfn, nep-com, nep-int and nep-isf
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:f202105

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