Does Corporate Governance Matter in Competitive Industries?

Xavier Giroud and Holger M. Mueller

No 14877, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: By reducing the threat of a hostile takeover, business combination (BC) laws weaken corporate governance and increase the opportunity for managerial slack. Consistent with the notion that competition mitigates managerial slack, we find that while firms in non-competitive industries experience a significant drop in operating performance after the laws' passage, firms in competitive industries experience no significant effect. When we examine which agency problem competition mitigates, we find evidence in support of a "quiet-life" hypothesis. Input costs, wages, and overhead costs all increase after the laws' passage, and only so in non-competitive industries. Similarly, when we conduct event studies around the dates of the first newspaper reports about the BC laws, we find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant stock price impact.

JEL-codes: G3 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-cfn, nep-cse, nep-mic and nep-reg
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Does Corporate Governance Matter in Competitive Industries?, with H. Mueller, Journal of Financial Economics, 2010

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