Product Market Competition, Corporate Governance, And Firm Performance: An Empirical Analysis For Germany

Abstract

This study examines the impact of product market competition and corporate governance on productivity growth in German manufacturing. Using a panel of almost 500 firms over the years 1986--94, we find that firms experience higher productivity growth when operating in markets with intense competition. Similarly, productivity growth is higher for firms under control of a strong ultimate owner, but not when the ultimate owner is a financial institution (a group that consisted almost exclusively of German banks and insurance firms in our sample period). Our results also indicate that competition and tight control are complements: The positive effect of competition is enhanced by the presence of a strong ultimate owner.