Effect Of Product Market Competition Research Articles

Control rights and cash dividends: A moderating effect of product market competition

This study aims to investigate the impact of control rights held by actual controller on dividends in China, and further explores whether this impact is affected by product market competition from both industry competition (IC) and corporate market power (MP) perspectives. The results show a positive relationship between control rights and dividends in both state-owned and non-state-owned enterprises, and the mechanism is dividend tunneling rather than governance. Moreover, IC has a disciplinary effect on dividend tunneling by the controllers, and MP weakens the positive relationship, which is associated with the promotion of stock liquidity, information disclosure quality and financial risk.

Retraction Note: Testing the impact of sustainable environmental regulations on firm performance with mediating effect of product market competition: empirical evidence from Turkey.

Retraction Note: Testing the impact of sustainable environmental regulations on firm performance with mediating effect of product market competition: empirical evidence from Turkey.

Product market competition and target ratcheting

ABSTRACT This study examines the effect of product market competition (PMC) on target ratcheting by conducting an OLS (ordinary lease squares) regression model that utilizes both the revision of targets and deviation of targets to measure target ratcheting. Using executive EPS targets from S&P 1500 firms from 2012 to 2020, I find that higher PMC, as measured by TNIC similarity scores, leads to less pronounced target ratcheting and asymmetric target ratcheting, indicating that PMC, rather than past performance, provides more informational value about managerial efforts. Ultimately, this study contributes to the literature by identifying PMC as a determinant of target ratcheting.

Product market competition and corporate maturity mismatch: evidence from China

ABSTRACT This paper studies the effect of product market competition on corporate maturity mismatch, aiming to show how market competition influences management decision-making in maturities of financing and investing. Using a sample of non-financial public firms in China over 2007–2021, we find that product market competition is positively associated with corporate maturity mismatch. The motivation for lowering debt costs and the deteriorated firm performance could be potential channels. The effect is more pronounced for non-state-owned firms, firms with higher risk-taking, internationalized firms, and firms in R&D-intensive industries. Firms’ competitive positions are negatively associated with maturity mismatch. Our findings highlight that competition could be an important determinant in maturity mismatch. This study enriches our understanding of maturity mismatch causes and the link to the external business environment and provides implications for management and policymaking.

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.

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.

Local product market competition and investment home bias

Local product market competition introduces predation risk, which could lead firms to take advantage of local, non-industry investment options to avoid pressure from their local product market competitors. However, investment within competitive local product markets tends to be inefficient due to difficulties in obtaining information and coordinating actions. This inefficiency could extend to local, non-industry-specific investments, resulting in a negative effect of product market competition on a firm’s response to local, non-industry investment opportunities. Testing these two competing views, we find that firms in competitive local product markets show higher sensitivity to local, non-industry-specific investment signals, and that such sensitivity is associated with an increase in performance and market share. These results hold when addressing the potential endogeneity issue using an exogenous shock to local product market competition, a PSM technique, and an IV estimation. Furthermore, our results show that firms in competitive local product markets are also more likely to make local, non-industry acquisitions. Lastly, our results show that firms in competitive local product markets are more responsive to local, non-industry investment opportunities, primarily when they have low cash holdings, are financially unconstrained, or have little geographical diversification.

The differential effects of product market competition on individual analysts

This study examines how product market competition differentially affects existing versus new analysts. I find that new analysts' coverage increase is significantly higher than the existing analysts' coverage increase when a portfolio firm faces high competition, suggesting existing analysts’ tendency to avoid competition among analysts for their career success. I also find that new analysts' one-year earnings forecasts accuracy decrease is significantly larger than the one of the existing analysts when the portfolio firm faces high competition. These findings indicate that existing analysts consider the situation firm faces, product market competition, and they are more competent than new analysts.

Product Market Competition, Corporate Investment, and Firm Value: Scrutinizing the Role of Economic Policy Uncertainty

This study examines the effects of product market competition on corporate investment and firm value and the moderating role of economic policy uncertainty on this relationship. The firm-level data of 1971 listed corporate firms for BRIC (Brazil, Russia, India, China) countries during 2009–2020 were used, totaling 23,652 observations. Using the GMM estimates, our results depict that product market competition significantly influences corporate investment and firm value in BRIC countries. The result also reveals that economic policy uncertainty plays a significant role in the impact of product market competition on corporate investment and firm value at Brazilian, Russian, Indian, and Chinese firms. The study’s findings contribute to the body of knowledge by providing new evidence on the relationship between PMC, corporate investment, and firm value. These findings are vital for policymakers and regulatory bodies to focus on economic uncertainty in a competitive environment without jeopardizing investment returns in emerging markets.

Pulling together by paying together: The effect of product market competition on TMT incentive dispersion

We examine whether firms that face increased competition are more likely to seek uniformity in the incentive payments made to top management teams (TMTs). Motivated by social comparison theory, we conjecture that variation in executive incentive payments will reduce as a strategic response to encourage TMT cooperation. We test this hypothesis by examining how TMT incentive dispersion changes following exogenous product market competition shocks from reduced tariff cuts. Matched difference-in-differences regressions on a large sample of manufacturing firms between 1992 and 2019 support our prediction. Firms experiencing large tariff cuts are associated with both lower total- and equity-incentive dispersion. This effect is stronger for firms with more powerful CEOs, suggesting that CEOs are a key channel for implementing the strategic use of TMT incentives in firms facing external competition.

Product Market Competition Dalam Menilai Corporate Risk Taking Dan Efisiensi Investasi

Corporate decisions are the parent of a company's survival. Corporate decisions are divided into two, namely corporate risk taking and efficiency investment. This study aims to analyze the effect of product market competition on corporate decisions, especially on corporate risk taking and investment efficiency. The main measure of product market competition is based on the level of the Herfindahl Hirschman Index (HHI). In this study the authors used MANOVA analysis to examine the relationship between product market competition (as an independent variable) on corporate risk taking and overinvestment (as the dependent variable) in multivariate and univariate ways. By using observations of manufacturing companies listed on the IDX in 2015-2020, a sample of 71 companies was obtained using a purposive sampling method. Based on the results of the multivariate test analysis that has been carried out in this study, it was found that product market competition has a significant effect on corporate risk taking and overinvestment, while based on the univariate significant test (test of between subjects-effect) product market competition has a significant effect on corporate risk taking while product market competition on overinvestment does not show a significant effect. So it can be concluded that competition acts as a mechanism for disciplining corporate decisions.

When Do Controlling Shareholders “Over-invest”? The Disciplinary Effect of Product Market Competition

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.

Product market competition and corporate advertising expenditure: Evidence from a natural experiment

Using the implementation of “Catalogue for the Guidance of Industries for Foreign Investment” in China in 2015 as an exogenous shock, we adopt the difference-in-differences (DIDs) method to explore the relationship between product market competition and corporate advertising expenditure. The result shows that product market competition significantly promotes corporate advertising expenditure, and the result is robust after conducting a series of robustness tests. In addition, we further examine the effects of product market competition on corporate advertising expenditure in firms with different characteristics. The results show that the effect is more pronounced for non-state-owned enterprises, small-scale firms, and high-tech firms. Overall, this paper supports that product market competition plays a vital role in promoting corporate advertising expenditure.

Product market competition and the value of corporate cash: An agency theory explanation

In this paper, we document the effect of product market competition on cash value and provide evidence supporting the agency discount mechanism. Using the regulation-induced IPO suspensions in China as shocks to product market competition, we find that reduced competition threat, induced by competitors' IPO delay, decreases incumbent firms' value of cash reserve. The effect of IPO suspension on cash holding is more pronounced for companies with severe agency problems and loose governance mechanisms but not statistically different across high and low predation threats. Furthermore, we show that the marginal value of cash increases when IPO restarts, and our baseline results hold in both a large sample and a matched sample of firms. Our paper contributes to the literature by providing the plausibly causal effect of product market competition on cash value and an explanation from the perspective of competition's disciplinary role in mitigating managers' slack.

The disciplinary role of product market competition on cash holding

This paper provides evidence supporting the disciplinary role of product market competition on cash holding. We use the regulation-induced IPO suspensions in China as shocks to product market competition. With a generalized difference-in-difference design, we find that reduced competition threat induced by rivals' IPO suspension increases incumbent companies' cash level by 1.0 percentage points. The effect of IPO suspension on cash holding is weakened when the product market is highly competitive before suspensions and more pronounced for companies with severe agency problems and loose governance mechanisms. Furthermore, we document that the marginal value of cash reduces during IPO suspension, and companies' cash level decreases when IPO restarts. Our paper contributes to the literature by providing the plausibly causal effect of product market competition on cash holding and an agency explanation from the perspective of competition's disciplinary role in mitigating managers' slack.

Product market competition and stock price crash risk: Exploring the role of managerial ownership

The purpose of this paper is to examine whether product market competition is a means of external shareholders’ protection likely to decrease the stock price crash risk. The results show that product market competition is an effective corporate governance mechanism that is likely to constrain managers to disclose bad news regularly to the market, which in turn mitigates the risk of stock price crashes. The results also show that the negative effect of product market competition on stock price crashes is more pronounced for owner-managers. These results suggest that managerial ownership is likely to align managerial interests with shareholders ones.

Testing the impact of sustainable environmental regulations on firm performance with mediating effect of product market competition: empirical evidence from Turkey.

Environmental challenges are increasingly becoming global issues due to the negatively induced effect of carbon dioxide on the natural climate and the well-being of human beings. Industrialisation has intensified the energy demand which brought the surge in the consumption of conventional non-renewable energy resources, including fossil fuels. Despite the overwhelming evidence of negative effects of utilising conventional energy on the atmosphere, there has been a steady rise in industrial production which has encouraged firms to adopt technological innovation. In this sense, many countries have developed various strategies, frameworks and regulations to reduce industrial-driven environmental degradation. Environmental-friendly compliant production technology can be an important substitute model to improve economic development. This study examines the relationship between environmental regulation and firm performance with mediating the impact of product market competition in Turkey. The study uses multi-sectoral firm-level Turkish data covering from 2004 to 2020 which was analysed via numerous methods that control for endogeneity bias. The results of generalised method of moment indicate a strong positive effect of sustainable environmental regulation (SER) on firm performance (FP). Moreover, after mediating the effect of product market competition by decomposing the firms into low product market competition (LPMC) and high product market competition (HPMC), finding reveals a negative effect of SER on FP of LMPC whereas a positive impact was found in the HPMC firms. This finding shows that HPMC compels managers to form a differentiated profit maximisation strategy. In this sense, competition can play a dedicated role in enhancing firm performance in the context of government deliberate strategies and regulations for control of the industrial negative effect on the environment. The industrial sector needs to switch from conventional energy practices to sourcing green and renewable energy that would not jeopardise the environmental quality.

Multi-Factor-Market Contact: From Forbearance to Vengeance and Homogeneity

Multimarket contact is an important consideration in the analysis of firm competitive behavior. However, the role multi-factor-market contact—contact across multiple factor markets—plays in factor market rivalry has largely been overlooked. To explore the relationships among multi-factor-market contact, factor market competition, and firm competitive behavior, I combine arguments from the existing competitive dynamics and resource-based view literatures. To empirically capture these relationships net of the potentially confounding effects of product market competition, I test my hypotheses in the upstream oil and gas industry, where firms compete for scarce resources to produce commodities. Analyzing panel data that comprise over one million firm-month observations from 5,445 upstream oil and gas companies, I find evidence that multi-factor-market contact makes rivals act less intensely but also respond more aggressively. Further, factor market competition engenders action heterogeneity, but multi-factor-market contact weakens this effect toward homogeneity.

Product market competition, venture capital, and the success of entrepreneurial firms

We document a positive effect of product market competition (PMC) on venture capital (VC) staging. Employing large tariff rate reductions as an exogenous shock to PMC, we find that large tariff reductions lead to a greater likelihood of staged financing and a larger number of financing rounds. Cross-sectional analyses reveal that the effect is stronger for entrepreneurial firms that are younger, operate in high-tech and manufacturing industries, or receive investments from less reputable and inexperienced VCs. Our findings are consistent with the notion that by mitigating business uncertainty and survival risk, VC staging acts as a complement to PMC for enhancing entrepreneurial firms’ success.

Non-Financial Enterprise Financialization, Product Market Competition, and Total Factor Productivity of Enterprises

At present, two big challenges have struck China’s economic development: economic containment “from the real to the virtual” and accomplishment in the goal of high-quality economic development. Taking China’s A-share public manufacturing enterprises from 2007 to 2020 as samples, this paper empirically analyzes the relationships among product market competition, non-financial enterprise financialization, and total factor productivity of enterprises. It is found that non-financial enterprise financialization significantly lowers down the total factor productivity of enterprises, that is, the total factor productivity of enterprises will drop by 1.7% as the non-financial enterprise financialization rises by 1 SD every time. After external regulation effects of product market competition are further taken into account, the furious product market competition, on the whole, mitigates the negative influences of non-financial enterprise financialization on total factor productivity of enterprises by strengthening the role of non-financial enterprise financialization as a “reservoir” and abating the “crowding-out” effect. Therefore, competition promotion policies combined with funds moving “from the virtual to the real” could more effectively elevate the enterprise productivity.