Level Of Product Market Competition Research Articles

Determinants of advertising expenditures: Role of stock prices in an emerging market

AbstractThis paper documents the relationship between advertising expenditures and stock prices. Using the data of non-financial firms from India, the paper shows that advertising expenditures of a firm are sensitive to its own stock prices and to stock prices of its peer firms during the period between 2000 and 2021. These findings remain qualitatively the same when we use different estimation procedures. The paper also shows that the relationship between advertising expenditures and stock prices depends on the level of product market competition. This relationship becomes more pronounced as product competition increases.

AI technology application and employee responsibility

Employees are important stakeholders of firms, and employee responsibility is a crucial dimension of corporate social responsibility. This study employed a multivariable linear regression model to analyze the impact of AI technology on the variation in employee responsibility. We also utilized multiple methods, such as propensity score matching and alternative indicator analysis, to ensure the robustness of the research results. We theorized and found that the application of AI technology has a negative effect on employee responsibility, with supervision cost partially mediating the relationship between AI technology application and employee responsibility. Moreover, the negative relationship between AI technology application and employee responsibility decreases as the level of product market competition in which the firm operates increases, and it is stronger in government-controlled firms than in privately controlled firms. We also found that AI technology application and employee responsibility can improve firm productivity, and employee responsibility has a significant positive impact on innovation output and innovation efficiency, while the application of AI technology does not significantly impact innovation output and innovation efficiency. Our study contributes to research on the impact of AI technology in the workplace and has important implications for organizational practices regarding the application of AI technology and employee responsibility.

Corporate social responsibility and firm market performance: the role of product market competition and firm life cycle

PurposeThis study empirically investigates the role of product market competition and mature-stage firm life cycle on the relation between corporate social responsibility (CSR) and market performance in an emerging market context – Malaysia.Design/methodology/approachThe authors construct a comprehensive CSR index toward the economy, environment and society (EES) and apply both Ordinary Least Squares (OLS) and Two-Stage Least Squares (2SLS) instrumental variables (IV) approaches to test the hypotheses of the study.FindingsThe authors find that EES-based CSR generally enhances firms' market performance; however, the level of product market competition undermines the market performance of socially and economically responsible firms. In addition, the study results indicate that mature-stage firm life cycle with more involvement in CSR activities shows better market performance. However, the endogeneity check of CSR suggests that both CSR and mature-stage firms are mutually exclusive in influencing market performance. The study findings are robust to alternative measures and different identifications of high and low default risk situations of sample firms.Practical implicationsThis study carries practical policy implications for the listed firms, regulators and stakeholders in general. For example, regulatory bodies may promote greater involvement in CSR activities by listed companies in the Malaysian stock market. Investors and other market participants should be aware of factors influencing socially responsible firms' market performance such as the corporate life cycle and the level of competition in product markets.Originality/valueThis research work responds to the call of regulatory bodies in Malaysia at a time when the Malaysian economy is under threat of environmental distraction practices by the palm oil industry and import ban by the largest export market, i.e. the European Union by 2030. The study also contributes to the theoretical literature by refining the moderating role of product market competition and mature-stage life cycle on the relationship between CSR and market performance from the perspectives of resource-based and stakeholder theories in emerging economy settings.

The effect of board independence on firm performance – new evidence from product market conditions

We study the effect of corporate board independence on firm performance under different product market conditions. Using customer–supplier links to identify exogenous downstream demand shocks, we find that firm performance is positively associated with board independence when the firm-specific product demand drops. The results are stronger for smaller firms and firms with high growth and more volatile stock returns. The findings prevail if the firm faces a medium level of product market competition or a medium level of downstream demand shock. We provide suggestive evidence for the board's monitoring function driving the effectiveness of board independence in bad times of idiosyncratic risks, rather than its advisory function.

Will the Governance of Non-State Shareholders Inhibit Corporate Social Responsibility Performance? Evidence from the Mixed-Ownership Reform of China’s State-Owned Enterprises

Fulfilling social responsibilities in order to sustain development has increasingly become a strategic choice for companies. Good corporate governance can guarantee high corporate social responsibility performance. This paper selects state-owned enterprises listed on the Shanghai and Shenzhen A-Share market from 2013 to 2019 as samples and uses a panel data OLS regression model to empirically test the impact of the governance of non-state shareholders on the social responsibility performance of state-owned enterprises from two aspects of shareholding: structure and high-level governance. The results show that, first, the governance of non-state shareholders helps to improve the social responsibility performance of state-owned enterprises; second, that mechanism analysis indicates that non-state shareholders improve the social responsibility performance of state-owned enterprises by improving the internal control quality; and third, the impact of the governance of non-state shareholders on the social responsibility performance of state-owned enterprises is heterogeneous in three aspects: the degree of marketization, the level of product market competition, and the corporate profitability. This paper not only helps to clarify the factors which influence the social responsibility performance of state-owned enterprises, but also enriches studies on the economic consequences brought by non-state shareholders through participating in the governance of state-owned enterprises.

Effectiveness of industrial policy in supporting innovation: the role of internal and external corporate governance mechanism

ABSTRACT Focusing on supporting the new and high-tech industries, China’s high- and new-technology enterprise (HNTE) programme aims to stimulate the innovation and creativity of enterprises. Centering on China’s HNTE programme, this paper investigates the impact of industrial support policy on firm innovation, and further examines the boundary conditions of policy effectiveness from the perspective of corporate governance. The results show that industrial support policy can significantly promote firm innovation. Moreover, we find that internal governance (executive equity incentive) and external governance (product market competition) have a significant moderating effect on innovation support of industrial policy, and the role of executive equity incentive depends on the level of product market competition. And product market competition and executive equity incentive are complementary in influencing policy effectiveness only at low competition level. The tests of the boundary conditions of policy incentive effectiveness and the complementary relationship between internal and external governance hold interesting implication for research on innovation policy and corporate governance.

Industry cash flow volatility and stock price crash risk

This study examines the effect of industry cash flow volatility on the risks of stock price crash by investigating Chinese A‐share listed companies from 2005 to 2015. Findings reveal that increases in the degree of volatility in industry cash flow significantly increase the risk of a stock price crash, and the conclusion remains valid after the robustness test. Further empirical research reveals that a higher level of product market competition and a higher level of policy uncertainty increase the positive effect of industry cash flow volatility on stock price crash risks, which confirms the moderating effect of product market competition and policy uncertainty. The effect of reducing the degree of accounting conservatism and increasing the optimism of analysts' earnings forecasts is analyzed and revealed as interim steps in the mechanism of the effect of industry cash flow volatility on the company's stock price crash risk. Overall, this evidence highlights the severe consequence of industry cash flow volatility on crash risks, which should encourage researchers, investors, and regulators to address the management of industry cash flow volatility.

Financial statement comparability and corporate investment efficiency

Purpose The purpose of this paper is to examine the relation between financial statement comparability and corporate investment efficiency of a large sample of US firms. Design/methodology/approach The authors use a large sample of US-listed firms from 1981 to 2013. The authors use several econometric methods including ordinary least square, firms fixed effects and mediation effects regression. Sensitivity tests that include the use of alternative measures of both the dependent and independent variables provide results that are consistent with the authors’ baseline model results. Findings The authors find that financial statement comparability mitigates risks associated with both under-investment and over-investment. They also find that product market competition mediates the relation between financial statement comparability and investment efficiency. The authors consider this to be a function of a competitive environment, whereby firms normally disclose less private information. This in turn reduces the effect of financial statement comparability on investment efficiency. Conversely, where there are higher levels of product market competition, it is less likely that firms will under-invest. Their results are consistent with these predictions. Originality/value The authors contribute to this growing field of research by providing evidence that financial statement comparability does in fact improve firms’ investment efficiency. Findings enhance our understanding of the relation between investment efficiency and financial statement comparability which is likely to have flow-on effects in terms of financial reporting quality and firm value. This study also contributes to research that links agency theory to financial statement comparability through an analysis of moral hazard and adverse selection tenets, and how it leads to reduced levels of investment inefficiency in a firm.

Does Corporate Social Responsibility Spending Affect Strike Risk? Evidence from Union Elections

This paper investigates the effect of corporate social responsibility (CSR) spending on labour unions’ propensity to initiate strikes. Given limited financial resources, we posit that firms’ inability to satisfy the demands from all of their stakeholders leads to resource competition among those stakeholders. By exploiting the unique setting of union elections in U.S. firms as plausibly exogenous shocks to labour power, we employ a triple-differences specification and find that firms with high levels of (non-employee) CSR spending are exposed to a significantly higher risk of union strikes. We interpret this finding as evidence consistent with CSR spending intensifying resource competition between employees and other stakeholders. We also document evidence that firms strategically curtail CSR expenditure in non-employee dimensions in response to unionisation in order to mitigate the increased strike risk. Such downward adjustment in CSR spending, however, is less pronounced in financially constrained firms, firms in “sin” industries and firms facing high levels of product market competition, due to their strong incentives to signal quality through CSR spending. Overall, our study sheds light on the inter-stakeholder relationship through the lens of a powerful stakeholder, i.e., organised labour, and has important implications for managers facing severe labour risk.

Cost Stickiness and Stock Price Crash Risk: Evidence from China

ABSTRACT Sticky cost will enhance variety of firms’ performance and uncertainty, does sticky cost list company increase or decrease stock price crash risk? Due to information and expected concerns, investors will consider sticky cost as companies’ capacity and risk. We examine the effect of sticky cost on firms’ stock price crash risk and find a negative association. This association mainly exists in firms with younger CEO, high level of product market competition, lower finance risk, poor performance, state-owned and concentrated ownership. We conclude that the sticky cost reduces the stock price crash risk. The conclusions have theoretical and practical significance for corporate governance and corporate strategy.

Reliance on major customers and product market competition

Although reliance on major customers has been growing over time, the literature has been largely silent on the determinants of customer base structure. This paper shows that low levels of product market competition in the customer industry is one important factor that can encourage supplier firms to establish relationship with major customers, and enhance existing ones. In support of the argument, we find that the fraction of suppliers’ total sales to major customers is positively associated with customer industry product market concentration. We argue that the recent increase in concentration of customer industries could have increased reliance on major customers.

Board monitoring, product market competition and firm performance

PurposeThis paper aims to analyze the monitoring role of board and product market competition in relation to firm performance. Further, this paper analyzes the moderating role of product market competition in influencing the board monitoring and firm value relationship in the context of an emerging economy, India.Design/methodology/approachA large sample of 3,854 firm-year observations has been used over a period of 10 years (2007-2016). Industry and year-fixed effect regression methodology has been used to test the hypothesized relationships.FindingsThe empirical findings indicate that board monitoring adds negatively to the firm value. The results also indicate that product market competition bears an insignificant moderating effect on the effectiveness of board monitoring in India. However, a more in-depth analysis reveals that product market competition complements the weak board monitoring of business-group firms. Further, the effectiveness of the board monitoring (which is relatively stronger in business-group firms) is weakened by the increased level of product market competition for stand-alone firms.Research limitations/implicationsA significant negative effect of board independence on the firm value raises the effectiveness of various policies advocating the board independence to strengthen the governance structure of the firms. The findings relating to the moderating role of product market competition for the business-group and stand-alone firms are helpful in understanding the governance behavior of the firms in relation to the external product market competition.Originality/valueExternal governance mechanisms such as the market for corporate control and product market competition have been described as significant corporate governance mechanisms. However, the empirical efficacy of these governance mechanisms has not been explored in a greater detail in the context of the emerging markets. This study aims to address this research gap.

Does Trade Secrets Protection Affect Labor Investment Strategy?: Evidence From the Inevitable Disclosure Doctrine

This study investigates the impact of trade secrets protection on corporate employment decisions. By exploiting the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by the U.S. state courts as an exogenous shock that significantly reduces employee mobility, we employ a difference-in-differences (DiD) approach and find that the adoption of the IDD, on average, leads to higher deviation from the optimal employment level explained by the underlying economics (i.e., lower labor investment efficiency) for firms headquartered in that state, whilst the rejection of the previously adopted IDD results in lower deviation from the optimal employment level (i.e., higher labor investment efficiency). Further analyses show that the impact of the IDD adoption on corporate employment decisions is primarily driven by firms’ overinvestment in labor, suggesting that firms strategically engage in precautionary human capital hoarding in response to the reduced talent supply in the labor market and consequently higher labor adjustment costs. Our cross-sectional analyses show that the impact of the IDD adoptions on corporate employment decisions is more pronounced for (1) firms in high-skill industries and (2) firms facing high levels of product market competition. Overall, our findings indicate that the trade secrets protection environment can be an influential determinant for labor investment practices and have implications for both policymakers and industry practitioners.

The Effect of Board Structure on Firm Performance - New Evidence from Product Market Conditions

We study the effect of corporate board structure on firm performance under different product market conditions. Using customer-supplier links to identify exogenous downstream demand shocks, we find that board independence has a more significant effect on firm performance when the firm-specific product demand drops, compared to other demand conditions. The results are more pronounced when a firm is smaller, experiences higher growth, or has higher stock price volatility. We further show that our documented effect of board independence only prevails if the firm faces medium level of product market competition, or if the negative shock is at a medium level. We provide suggestive evidence supporting the view that it is the board’s monitoring function that drives the effectiveness of board independence in bad times, rather than its advisory function.

Relationship between FDI, foreign ownership restrictions, and technology transfer in the resources sector: A derivation approach

In various industries, multinational companies are the dominant players while local firms play a less prominent role. We consider such an industry and develop a model in which foreign multinationals strategically interact in technology transfer and compete in the product market stage. Furthermore, we analyze the welfare implications of often observed FDI policy measures. We find that the cost of technology transfer provides a possible rationale for why in practice FDI crowding out effects are often smaller in less developed countries.We also find that foreign ownership restrictions may reduce FDI crowding-out effects. However, the net effect of these restrictions on host country welfare will be negative. Finally, we find that, in industries with low levels of product market competition (e.g. the natural resources sector), the government may improve welfare by taking away the joint venture equity share of the domestic firm.

The Impact of Telecommunication Technologies on Competition in Services and Goods Markets: Empirical Evidence

AbstractIn this paper, we empirically show that a more intensive use and wider adoption of telecommunication technologies significantly increases the level of product market competition in services and goods markets. Our results are consistent with the view that the use of telecommunication technologies can lower the costs of entry and search. These findings are robust to various measures of competition and a wide range of specification checks.

Accounting for derivatives and risk management activities

Purpose – The lessons and merits of changes in the recognition and disclosure of derivative instruments and hedging activities are still debated and are a major policy issue. Prior studies provide mixed evidences on the economic consequences of mandatory derivative instruments ' recognition and disclosure. This paper aims to provide empirical evidence on the impact of mandatory derivative instruments ' recognition and disclosure on managers’ risk-management behavior. More importantly, this paper aims to investigate the role of product market competition on the impact of mandatory derivative instruments ' recognition and disclosure on managers’ risk-management behavior. Design/methodology/approach – This paper tests the author ' s hypotheses using the fixed-effects estimation technique, where it includes firm dummies in all the regressions. This approach enables to control for unobserved firm effects (fixed effects) on firms’ risk-management behavior that are assumed to be constant through time but vary across firms. Findings – The author finds that mandatory recognition and disclosure of derivative instruments and hedging activities, on average, decreases firms’ market rate risk exposure. This finding suggests that after the implementation of the recognition and disclosure of derivative instruments and hedging activities required by Statement of Financial Accounting Standards No. 133 (SFAS 133), firms engage in more prudent risk-management activities to mitigate the potential cost of earnings volatility imposed by the standard. However, the decrease in market rate risk exposure is lower when the level of product market competition is higher. This finding is consistent with the idea that the recognition and disclosure of derivative instruments and hedging activities required by SFAS 133 unintentionally forces firms in competitive industries to engage in significant risk-taking. The result suggests that more disclosure in risk management may change risk-management incentives in undesirable ways if firms face the threat of entry in their product markets. Practical/implications – The results provide a new understanding on the role of product market competition on the effectiveness of mandatory derivative instruments ' recognition and disclosure. The findings imply that standard setters should take product market competition into consideration before making derivative instruments and hedging activities ' recognition and disclosure mandatory for all firms. Originality/value – The paper contributes to the accounting literature by providing a new insight into the moderating role of product market competition in the accounting recognition and disclosure regulation and firms’ reporting behavior relation. Moreover, the paper extends the current literature on the effects of SFAS 133 on risk-management activities and sheds light on the impact of accounting regulations on firms’ real economic behavior.

Information Disclosure, Product Market Competition, and Firm Value

This study examines the relationship between information disclosures and firm value under different levels of product market competition. Using a unique information rating scheme that draws from 114 measures over five dimensions of information disclosure from 2005 to 2013, we find that firms with higher levels of information disclosure (better information transparency) are related to higher industry-adjusted Tobin’s Q. We also find that the levels of information disclosure and product market competition interact in affecting firm value. This relationship is robust after controlling for a number of firm-specific factors and agency-based measures. Our paper brings two streams of research that aim to explain the variation in firms’ value together, and suggests that information disclosure and product market competition complement each other in enhancing a firm’s value.

Testing creative destruction in an opening economy

AbstractThis paper analyses the relationship between trade liberalization and economic growth using a Schumpeterian framework of technological innovation and applies it to sector‐level South African data. The framework examines direct and indirect effects of trade liberalization on productivity growth. Indirect impacts operate through a differential impact of trade liberalization on firms conditional on their distance from the international technological frontier. Results confirm positive direct impacts of trade liberalization. Results confirm also that the greatest positive impact of trade liberalization will be on sectors that are close to the international technological frontier and that experienced a low level of product market competition before liberalization.

Capital structure, product market competition and firm performance: Evidence from South Africa

Abstract This paper investigates the relationship between capital structure and firm performance, paying particular attention to the degree of industry competition. The paper applies a novel measure of competition, the Boone indicator, to the leverage-performance relationship. Using panel data consisting of 257 South African firms over the period 1998–2009, this paper examines the effect of capital structure on firm performance and investigates the extent to which the relationship depends on the level of product market competition. The results suggest that financial leverage has a positive and significant effect on firm performance. It is also found that product market competition enhances the performance effect of leverage. The results are robust to alternative measures of competition and leverage.