Abstract
This study investigates the effect of product market competition as an external control mechanism on the operation and efficiency of corporate takeovers in an emerging economy. Empirically, we find that firms in more competitive product markets are more likely to experience a change in control than those in less competitive markets after controlling for other firm and industry characteristics. Further, the positive effect of a change in control on shareholder wealth is observed in more competitive product markets but disappears in less competitive markets. The results imply that product market competition improves market efficiency for corporate control in an emerging economy with less developed capital markets and weak investor protection, supporting the complementary Hypothesis between product market competition and corporate takeover.
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