Product Market Competition Research Articles

Internal governance and corporate social responsibility performance

AbstractInternal governance is the process by which vice presidents (VPs) use their influence with the chief executive officer (CEO) to impact the firm's direction and policy. This study examines the effect of internal governance on corporate social responsibility (CSR) performance. Based on a large sample of US firms and after controlling for various CEO incentives, corporate governance and other determinants of CSR performance, we find that more effective internal governance is associated with a better CSR performance. These results are robust to alternative internal governance and CSR measures, alternative samples and various approaches that mitigate potential endogeneity problems. Further analysis shows that the effect of internal governance on CSR performance is more pronounced when (a) the CEO is subject to more intensive monitoring, (b) VPs are more powerful, (c) firms experience less short‐term financial performance pressure and (d) they face stronger product market competition. This study advances our understanding of corporate governance's effect on CSR by showing the importance of internal governance.

Product market competition, investor protection and analysts’ earnings forecasts

Purpose This study aims to examine the effects of product market competition (PMC) on analysts’ earnings forecast attributes, particularly forecast accuracy and dispersion. The authors also investigate whether investor protection moderates the relationship between PMC and forecast attributes. Design/methodology/approach The sample covers 49,578 firm-year observations from 38 countries. This study uses an ordinary least squares regression, a Heckman two-stage regression and an instrumental two-stage least squares regression. Findings This study finds that PMC is associated with higher forecast accuracy and lower dispersion. The results also show that investor protection enhances the effect of PMC on forecast accuracy and dispersion. These findings imply that countries with strong investor protection have a better information environment, as exhibited by the stronger relationship between PMC and analysts’ forecast properties. Practical implications The findings highlight the importance of strong governance mechanisms in both the country and industry environments. Policymakers, including government agencies and financial regulators, can leverage these insights to formulate regulations that promote competition, ensure investor protection and facilitate informed investment decisions. Originality/value This study advances our understanding of how PMC affects analysts’ earnings forecast attributes. In addition, it pioneers evidence of the moderating role of investor protection in the relationship between PMC and forecast attributes.

Why do sports goods manufacturers choose different corporate social responsibility engagements?

This study examines the impact of financialization and product market competition on the corporate social responsibility (CSR) engagements in sports goods manufacturing industry. Utilizing a dataset of China's listed firms, we employ textual analysis to identify organizations within this sector and create a panel data model to analyze the determinants of CSR engagements. Our empirical findings reveal that financialization and product market competition positively influence shareholder-related CSR engagements. Additionally, product market competition enhances the effect of financialization on these engagements. Conversely, a negative correlation exists between product market competition and stakeholder-related CSR engagements. Moreover, firms not categorized as State-Owned Enterprises (SOEs) or within high-pollution industries show a positive response in CSR engagements to both financialization and product market competition. Our results also highlight that managerial compensation and financial constraints modify the impacts of financialization and product market competition on shareholder-related CSR engagements. Collectively, our findings shed light on the challenges that sports goods manufacturing firms face in aligning their primary goals with CSR commitments.

The power of competition: Unveiling China's digital transformation through product market dynamics

This study investigates the non-linear relationship between product market competition (PMC) and digital transformation (DTF) in China's digital economy, utilizing data from a large sample of Chinese firms. The findings reveal a U-shaped relationship, wherein DTF initially decreases and then increases as competition intensifies. Furthermore, we examine the impact of financing constraints on this relationship and discover a negative effect on the “U-shaped” relationship. These results emphasize the necessity for companies to update their transformation strategies for sustained competitiveness and adaptability, providing fresh insights into digital transformation complexities in competitive environments.

Does peer firms' debt default have positive externalities: The investment efficiency perspective

This paper examines the positive externalities of peer firms' debt default based on the investment efficiency perspective using data from Chinese listed companies from 2007 to 2021. We robustly find that peers' debt default significantly increases the focal firm's investment efficiency. Moreover, peers' debt default generates positive externalities through investor attention and product market competition mechanisms. Additionally, our findings indicate that online platform interaction and industry tournament incentive enhance these positive externalities. Our study promotes a more nuanced understanding of debt default.

Platform financing vs. bank financing: Strategic choice of financing mode under seller competition

Third-party sellers on online platforms primarily rely on banks to meet their financing requirements and are often constrained by the lack of sufficient working capital. Online platforms such as Amazon and Alibaba have ushered new dynamics in the e-commerce financing landscape by offering working capital loans to these sellers, thereby directly competing with banks and influencing market competition. This paper analytically studies how the competition between third-party sellers on platforms affects the strategic financing choices of sellers, namely, platform financing (P) vs. bank financing (B). We examine how the financing choice influences sellers’ pricing decisions in the competitive product market. Based on the sellers’ financing choices, four lending modes are possible: BB, PP, BP, and PB. Our analyses provide critical insights on the optimal financing choices and uncover the interplay of pricing, product substitution, referral fees, and production costs. We show that any seller deviating from PP to a hybrid mode (BP/PB) leads to a higher platform interest rate and a lower seller profit. We find that the competing sellers choose a hybrid lending mode when the unit production cost is low. However, the platform always prefers PP, leading to an all-win outcome in the supply chain when the production cost is high. Furthermore, for products with low referral fees and high substitution effect, BP/PB emerges as the equilibrium mode, while for products with low referral fees and low substitution effect, PP is the equilibrium outcome. Interestingly, we find that both sellers may choose bank financing when their working capital levels are high.

Technological innovation under trade disputes: how does product market competition matter?

PurposeThis study investigates firms' innovation behaviour under environmental change. Therefore, it examines the effect of trade disputes on corporate technological innovation and how product market competition moderates this relationship.Design/methodology/approachThis research tests the hypotheses using the fixed effects model based on panel data of publicly listed enterprises in China from 2007–2020.FindingsThe empirical results validate the positive association between trade disputes and corporate research and development (R&D) intensity as well as the U-shaped relationship between trade disputes and radical innovation. Additionally, the moderating effect of product market competition is verified: a concentrated market with less competition flattens the U-shaped curve of radical innovation induced by trade disputes; as the market becomes more concentrated and less competitive, the U-shaped relationship eventually turns into an inverted U.Originality/valueFirst, this study contributes to the corporate innovation and trade dispute literature by expanding the environmental antecedents of technological innovation and the firm-level consequences of trade disputes. Second, this study enriches the theoretical framework of the environment–innovation link through an integrated perspective of contingency theory and dynamic capabilities view. Third, instead of the traditional linear mindset which had led to contradictory results, this study explores a curvilinear effect in the environment–innovation relationship.

Product market competition and investment efficiency nexus with mediating effect of firm risk-taking in Pakistan

Product market competition and investment efficiency nexus with mediating effect of firm risk-taking in Pakistan

Economic policy uncertainty and SMEs’ investment efficiency in France: does competitive pressure matter?

PurposeThis paper aims to investigate empirically the impact of economic policy uncertainty (EPU) on small-to-medium enterprises’ (SMEs) investment efficiency and whether product market competition influences this association.Design/methodology/approachThe study was conducted on French SMEs listed on the “CAC Mid & Small” Index over 2008–2021. This paper proposes a quantitative approach to test the relationship between the EPU and SME investment efficiency.FindingsThese findings show that EPU significantly alleviates SMEs’ investment inefficiency, reflected in the reduction of overinvestment and underinvestment. As EPU increases, firms with more exposure to such uncertainty invest more efficiently, and their overinvestment tendency becomes lower, while reducing the risk of underinvestment. These results are still significant after a series of robustness checks. Further analysis shows that EPU mitigates investment inefficiency to a greater extent for firms operating in highly competitive industries, and better information environments.Research limitations/implicationsThis study was limited to the French EPU index and could be extended to a European or even international scale. Moreover, using alternative uncertainty indexes across various European countries can be more advantageous in further studies. Although results suggest that EPU affects investment efficiency, future studies could further explore the mechanisms through which EPU affects SMEs’ investment efficiency and, in particular, across different industries. Understanding these variations due to the specific industry-EPU sensitivity can provide valuable insights. Finally, it would be interesting to examine the risk management strategies adopted by SMEs in the face of EPU, combined with other growing risks, such as climate risk.Practical implicationsIn the face of high EPU, SME managers must improve risk management, adopt appropriate investment strategies, consider using predictive analytics or economic forecasting tools and embrace technology and innovation that enhance agility and responsiveness to policy uncertainty. Besides, political decision-makers should adapt their regulatory policies (tax, labor, housing, etc.) to preserve the efficiency of SME investment.Originality/valueAlthough the debates on how policy uncertainty affects the investment and financing of large businesses have received a great concern of academia, to the best of the authors’ knowledge, this is the first study that focuses on the effect of EPU on investment distortions for SMEs.

Market power and systematic risk

AbstractWe examine the impact of product market competition on firms' systematic risk. Using a measure of total product market similarity, we document a strong negative relationship between market power and market betas. The effect more than triples in the most recent period of low competition. Anticompetitive mergers result in a significant reduction in market betas. Firms facing less competition seem to be partially insulated from systematic discount‐rate shocks. Lower equity costs therefore imply that market power is partly self‐perpetuating.

Shhh… Do Gender-Diverse Boards Prioritize Product Market Concerns Over Capital Market Incentives?

We examine whether gender-diverse boards prioritize product market concerns over capital market incentives when proprietary costs are high. We argue that gender-diverse boards protect their firm’s competitive edge and maximize long-term shareholder wealth by ethically and carefully maintaining the confidentiality of proprietary information. Due to the reduced disclosure of proprietary information, firms with gender-diverse boards are likely to face more adverse selection when proprietary costs are high. However, the reduced disclosure of proprietary information enables firms with gender-diverse boards to enhance and maintain their competitive edge and gain higher long-term returns. Using a matched sample of the United States-listed companies, we find that firms with gender-diverse boards, relative to similar firms with all-male boards, (1) are associated with higher adverse selection costs and (2) higher long-run stock returns when the firm faces high product market competition. Collectively, our results suggest that firms with gender-diverse boards, which initially experience higher adverse selection in a competitive environment, are rewarded with a net gain of about 10 percent of their stock price in three years. Our research contributes to the literature by highlighting the importance of board gender diversity in fostering the ethical redaction of proprietary information for proprietary cost-based motives as opposed to agency cost-based motives. Our findings have important implications for regulators, firms, and shareholders by identifying gender-diverse boards as an antecedent for the ethical redaction of proprietary information.

The determinants and consequences of firms’ boilerplate answers: Evidence from online interactive platforms in China

We use a BERT-based model to identify firms’ boilerplate answers on online interactive platforms in China. We find that firms are inclined to provide boilerplate answers to investors’ questions on firm performance, but less likely to questions about product market competition. Further findings indicate that the proportion of boilerplate answers is higher when firms’ performance is weaker, while lower when they face greater competition pressure or possess more market power. We also find that firms’ boilerplate answers negatively affect investor trading, market liquidity, and market efficiency. Furthermore, these negative effects are stronger in firms with a poorer information environment.

Financial innovation and digitalization promote business growth: The interplay of green technology innovation, product market competition and firm performance

With the emergence of technological innovations, digital finance with a blend of new models and the development of inclusive financial innovation shows great significance for business firms to emphasize innovative and competitive product market competition. Thus, financial digitalization and business environment directives help improve the financial performance of business enterprises. This study assesses the role of product market competitiveness on firm performance through the mediating role of digital financial innovation. The annual data of 90 companies from 2014 to 2020 is taken from the Pakistan stock exchange market. The empirical results are estimated using three paths by the Structural Equation Model (SEM) regression approach. The study identifies that product market competitiveness positively contributed to determining the firm performance. Besides, digital financial innovation serves as the mediator in the study, which partially positively determines firm performance. It shows that firm financial innovation fails to account fully for firm performance. This study does not include several other factors determining firm performance. The research results deliver a useful empirical and theoretical contribution to digitalization and product innovation. The findings help to uncover the antecedents of financial innovation and firm performance. This research model can assist researchers in designing robust strategies to appraise the impact on firm performance. Investigators may advance valuable insights by integrating this methodology. Concerning originality, these results indicate that digitalized innovation positively influences firm performance by offering innovative products and digitalization. The outcomes contribute to the literature on digital innovation, and the study recommends that business organizations should pay particular attention to improving financial innovation and digitization in business firms.

Does digital transformation reduce the labor income share in enterprises?

This paper investigates the impact of firms' digital transformation on labor income share utilizing a large sample of Chinese-listed enterprises from 2003 to 2020, and we find a negative correlation between digital transformation and enterprise labor income share. The results are robust to changing variable indicators, instrumental variable approach, and Difference-in-Difference method. The impact of enterprise digital transformation on labor income share is more pronounced for industrial industry, technology-intensive, and state-owned firms. Product market competition, employee wage bargaining power, and market size are essential in the relationship between enterprise digital transformation and labor income share. This study reveals that protecting employee rights and maintaining fair competition help weaken enterprise digital transformation's negative impact on labor income share.

Influence of Interface Design Driven by Natural Language Processing on User Participation

The relationship between NLP (Natural language processing) and UI (User interface) design is complementary: NLP technology provides more possibilities for UI design, and UI design provides NLP with a platform for application and development. The combination of the two can play a great role in improving user participation, improving user experience and promoting the development of human-computer interaction. This paper mainly discusses the influence of NLP-driven UI design on user participation. Through research, it is found that NLP-driven UI design has a positive impact on user engagement. Through the application of NLP technology, we can improve the user interface, increase user participation and loyalty, and then provide strong support for the promotion and development of products or services. Therefore, designers need to fully consider the application of NLP technology in UI design to meet the needs and expectations of users and improve the quality and market competitiveness of products or services. The future UI design trend will be the continuous optimization of NLP technology and the combination with other interactive modes to provide a richer and more efficient interactive experience.

Do competitive markets encourage tax aggressiveness?

We investigate whether industry-level product market competition and firm-level market leadership affect firms' tax aggressiveness. Studying competition from both current market participants and potential entrants, and using a market share-based measure of market leadership, we find that firms facing higher competition from current market participants engage in more tax aggressiveness. We further find that market-following firms — rather than market‑leading firms — engage in relatively more tax aggressiveness within these higher competition settings. Our results contrast with most political and regulatory anecdotes that target market‑leading firms for aggressive tax behaviors, and add to the ongoing policy debates on tax incidence. Our main findings and additional tests are consistent with the view that market‑leading firms in imperfectively competitive product markets are able to pass on tax costs to customers, while market-following firms in crowded industries are pressured to engage in tax aggressiveness because they cannot pass on tax costs.

Does analysts’ industrial concentration affect the quality of their forecasts?

We examine the association between financial analysts’ industrial concentration and the quality of their earnings forecasts. We find that analysts’ forecast quality, measured by forecast accuracy, forecast informativeness, and forecast timeliness, is positively associated with analysts’ industrial concentration on firm coverage, suggesting that allocation of effort and resources to the concentrated industries helps promote the quality of earnings forecasts. We also find that the positive relation of analysts’ industrial concentration with forecast accuracy and informativeness (forecast timeliness) is more (less) pronounced for firms faced with fiercer industrial product market competition, higher firm-specific risk, and/or higher information opacity. Overall, our results highlight the importance of analysts’ industrial concentration in contributing to the quality of their earnings forecasts.

Forced to innovate? Consequences of United States' anti-dumping sanctions on innovations of Chinese exporters

This study examines how trade protection, particularly anti-dumping sanctions on foreign exports, impacts innovations developed by affected foreign firms. Using data on anti-dumping sanctions levied by the United States (US) government on Chinese exports and on domestic patents associated with the sanctioned products developed by Chinese firms in China, our difference-in-differences estimates show that such anti-dumping sanctions imposed by the US on Chinese products significantly increased the total number of patented innovations produced by the firms exporting from China targeted by the sanctions. This effect is boosted during the pro-innovation national policy period launched by China in 2006. Moreover, we ascertain a critical scope condition that targeted exporting firms increase more-substantive innovations, rather than more-marginal ones, that likely increase the value-added of their products. Overall, these findings suggest that anti-dumping sanctions could lead to an unintended consequence of prompting targeted exporting firms to enhance their innovations in order to elevate the value-added of their products, thus enabling these firms to escape the price competition of lower value-added products and mitigate the risk of future anti-dumping sanctions. This outcome means that, in an effort to protect lower-end domestic manufacturers, protectionist policies could actually intensify the competition faced by higher-end domestic manufacturers via increasing the innovations of affected foreign firms. These outcomes might not only alter the structure of product-market competition, but also contribute to greater technological competition in the future.

Does product market competition influence annual report readability?

We study product market competition’s influence on annual report readability. As competition increases in an industry, our findings show that firms reduce the readability of their annual reports. We further document that the impact of competition on annual report readability is stronger for research and development (R&D)-intensive firms, for firms that have a higher level of trade secrecy (i.e. proprietary information), and for firms with higher levels of CEO performance-based incentives. Overall, our findings highlight the importance of the proprietary cost effect of competition on annual report readability.

Female venture capitalists on boards and firm innovation in China

ABSTRACT This paper empirically examines the representation of female venture capitalists (VCs) on boards and how they exert substantial influence on firm innovation performance in China. We first identify a positive association between female VCs’ board participation and firm innovation, implying that Chinese female VCs contribute to growing resource commitments and greater success in innovation through quality board services in portfolio firms. We then show that firms with female VC board directors exhibit a lower adverse effect of managerial myopia, capital market pressure, and product market competition on innovation activities. These results are robust to the use of instrumental variable (IV) estimations, subsamples, and alternative variable definitions.