Abstract
This study examines the effect of the interaction between controlling shareholder ownership and product market competition on investment inefficiency in Korea. Consistent with classical agency theory, this study finds that the lower the controlling shareholder ownership, the greater the overinvestment. However, this relationship strengthens in noncompetitive markets but disappears in competitive markets. This suggests that product market competition has a disciplinary effect on the incentive of controlling shareholders to pursue private benefits. This study has implications for the disciplinary effect of competition and expands the literature on agency theory in emerging countries with concentrated ownership structures.
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