Product Market Competition Research Articles

Meeting Targets in Competitive Product Markets

ABSTRACTWe show that public banks face negative stock return jumps after missing their earnings per share (EPS) targets, and theoretically and quantitatively link these jumps to bunching behavior in the EPS surprise distribution. Bunching banks cut deposit rates to meet their targets, but do so at the expense of deposit outflows and franchise value losses. Local competitors, including private banks unexposed to capital market pressure, increase deposit rates, compensating depositors for switching. Our results provide new evidence that performance targeting incentives can affect consumer product prices, and suggest that competition may provide a check on public firms' targeting efforts.

Competitive imitation and corporate innovation in private enterprises

The private economy has always been an important force in promoting the development of China's national economy. The unfair competition faced by private enterprises (PEs) compared to that faced by state-owned enterprises (SOEs) in many areas will induce the competitive imitation of PEs. We find that PEs' competitive imitation strategy significantly inhibits innovation, while increased agency costs and reduced R&D investment are the two main mechanisms for this inhibitory effect. Furthermore, we find that this effect is stronger in firms with lower growth rate, worse information environment and stronger product market competition. However, the competitive imitation of PEs will eventually damage their innovation efficiency.

Dung Beetle Optimizer Algorithm and Machine Learning-Based Genome Analysis of Lactococcus lactis: Predicting Electronic Sensory Properties of Fermented Milk.

In the global food industry, fermented dairy products are valued for their unique flavors and nutrients. Lactococcus lactis is crucial in developing these flavors during fermentation. Meeting diverse consumer flavor preferences requires the careful selection of fermentation agents. Traditional assessment methods are slow, costly, and subjective. Although electronic-nose and -tongue technologies provide objective assessments, they are mostly limited to laboratory environments. Therefore, this study developed a model to predict the electronic sensory characteristics of fermented milk. This model is based on the genomic data of Lactococcus lactis, using the DBO (Dung Beetle Optimizer) optimization algorithm combined with 10 different machine learning methods. The research results show that the combination of the DBO optimization algorithm and multi-round feature selection with a ridge regression model significantly improved the performance of the model. In the 10-fold cross-validation, the R2 values of all the electronic sensory phenotypes exceeded 0.895, indicating an excellent performance. In addition, a deep analysis of the electronic sensory data revealed an important phenomenon: the correlation between the electronic sensory phenotypes is positively related to the number of features jointly selected. Generally, a higher correlation among the electronic sensory phenotypes corresponds to a greater number of features being jointly selected. Specifically, phenotypes with high correlations exhibit from 2 to 60 times more jointly selected features than those with low correlations. This suggests that our feature selection strategy effectively identifies the key features impacting multiple phenotypes, likely originating from their regulation by similar biological pathways or metabolic processes. Overall, this study proposes a more efficient and cost-effective method for predicting the electronic sensory characteristics of milk fermented by Lactococcus lactis. It helps to screen and optimize fermenting agents with desirable flavor characteristics, thereby driving innovation and development in the dairy industry and enhancing the product quality and market competitiveness.

Product Market Competition and Stock Price Crash Risk: Evidence from China

Synopsis The research problem This study analyzes the relationship between product market competition (PMC) and stock price crash risk in China, especially for firms with weak corporate governance and a lower-quality information environment. Motivation Emerging capital markets like China have less-developed financial systems and institutions compared to developed capital markets like Europe and the United States, making them more susceptible to stock price crash risk. The impact of product market competition (PMC) on corporate decision-making has attracted considerable attention from scholars, especially given the increasingly intense and complex strategic competition in global markets and uncertainty in the world today. However, the effect of PMC on a firm’s stock price crash risk has not been thoroughly explored. Therefore, this study investigated how PMC affects managers’ tendency to hoard bad news and how this behavior contributes to the risk of stock price crashes. The test hypotheses We tested two competing hypotheses: PMC is negatively correlated with crash risk, and PMC is positively correlated with crash risk. Target population This study should be of interest to stakeholders, including firm managers, practitioners, regulatory authorities, policymakers, and investors. Adopted methodology This study employed ordinary least squares (OLS), difference-in-differences analysis (DID), and path analysis. Analysis Using a sample of Chinese A-share listed manufacturing firms from 2000 to 2021, this study found that competitive pressure from the product market encouraged managers to hide bad news, thereby increasing future stock price crash risk. Moreover, we performed additional tests to examine how PMC affected stock price crash risk. Findings We found robust evidence that PMC significantly increases stock price crash risk. Further tests showed that the effect of PMC on crash risk is more pronounced for firms with weak corporate governance and a lower-quality information environment. We also provide evidence that firms in highly competitive industries tend to disclose fewer negative words in the management discussion and analysis section of the annual report and fewer risk factors in the internal control report. Moreover, we show that operational risk is the underlying driver through which PMC affects crash risk.

Large shareholders' stock selling and corporate performance: Evidence from China

This paper investigates whether and how large shareholders' stock selling influences corporate performance and conducts an empirical study using the data of Chinese A-share listed companies. The findings reveal that large shareholders' stock selling has a significant negative impact on corporate performance, primarily manifested through two paths that are intensifying agency conflicts and increasing financing constraints. Moreover, the negative effect is more pronounced in enterprises with more intense product market competition, non-state-owned enterprises, enterprises with lower ownership concentration, and those with higher equity balance degree. Further analysis confirms that cash dividends significantly mitigate the negative impact of large shareholders' stock selling on corporate performance, while share pledging significantly exacerbates the negative effect. Our findings suggest that governments should regulate the stock selling of large shareholders based on internal and external enterprise environments, while international investors should consider market information such as stock selling, dividends and pledging when optimizing their investment allocations.

Working capital management in competitive market: empirical insights

PurposeThis study seeks to examine the relationship between a firm’s effectiveness in managing working capital (WCM), as measured by the cash conversion cycle (CCC), and its exposure to product market competition (PMC).Design/methodology/approachUsing 85,356 firm-year observations of 9,611 unique firms for the period 1990–2019, from the US, the baseline model assesses the CCC and PMC connection while controlling for multiple firm-level factors. Additional analyses are conducted to control for financial constraints, economic policy uncertainty, and endogeneity.FindingsAn inverse relationship is shown between PMC and CCC, indicating that firms facing increased competition tend to implement more efficient WCM strategies in order to free up scarce resources. In addition, we observe that increased PMC pushes companies to strategically adjust their credit policies, while also improving their administration of payables and inventories, resulting in improved efficiency. Our research highlights that CCC serves as a mediator between PMC and firm performance.Research limitations/implicationsThis study enhances comprehension of the impact of PMC on WCM, offering practical recommendations for companies seeking to optimize their strategy in competitive settings.Originality/valueThe study provides valuable insights for managers operating in competitive markets, highlighting the significant influence of working capital on business policies as a response to competition. This study contributes to the existing literature on WCM and PMC by providing guidance to organizations on how to improve their WCM practices, maintain competitiveness, and free up scarce resources.

Does crude oil price volatility affect risk-taking capability in business group firms: evidence from India?

PurposeThe study tests risk-taking and risk-aversion capabilities while distinguishing between business group firms and stand-alone firms and considering oil price volatility. Second, this attempt to study the linkage between risk-taking during market down movements and when the firms have established themselves as product market leaders. Third, this study analyses the “sentiment” state, where it explores the reaction of corporations when the market is in the negative direction, and lastly, it explores the linkage between product market competition and risk-aversion.Design/methodology/approachThis study uses financial information for 1,273 non-financial companies and other required data from various sources. The study employs panel data and utilizes different empirical methodologies, including the generalized method of moments (GMM) estimator, to test the stated hypotheses.FindingsWe find that the business group firms have more risk-taking proficiencies compared with the stand-alone firms. Moreover, this study discovers that the corporates avoid taking risks when the market is not performing well. Also, when the market is down and crude prices are high, the management expects high earnings in the future, willingly takes risks and shows that product market leaders do not follow the risk-aversion strategy.Practical implicationsThe empirical results indicate that oil price movement can restrict management’s behaviour when choosing a risky investment project. Management should develop a robust policy that follows the group of firms. In the policy, the management should describe the level of risk that may be taken by the firm and implement it when required.Originality/valueSince we do not find any studies in this context, then there is a major and essential gap in the literature that this study should fill.

How to select green technology acquisition paths for enterprises: An analysis based on evolutionary game theory

AbstractAs an important method of reducing pollution, green technology innovation (GTI) is receiving more attention. However, facing the challenges in conducting GTI, it is crucial for enterprises to find the optimal path to acquire green technology. This paper investigates how high‐pollution manufacturing enterprises make decisions on independent innovation and green technology introduction under government intervention and public involvement. The influences of other factors, such as media attention and product market competition, have also been considered in the tripartite evolutionary game model. The simulation after applying MATLAB indicates that government intervention and public participation have a significant impact on the decision‐making of green technology acquisition paths for enterprises. Government subsidies and penalties are important policy tools for enterprises to make decisions on the selection of green technology acquisition paths. Meanwhile, reputational incentives or losses brought from public involvement are also essential in encouraging government intervention and green technology acquisition of enterprises. Finally, the extent to which the changes in various influencing factors affect the selection of enterprises' green technology acquisition paths have been tested and simulated. This paper aims to provide policy implications for governments, as well as decision‐making strategies for enterprises that urgently require green transition to achieve sustainable development.

P‐85: The Methods to Improve Low‐gray Lens Mura

With the development of OLED display technology and the intensified competition in the OLED mobile phone product market, consumers are increasingly demanding the display quality of OLED mobile phones. The higher image quality requirements have prompted panel makers to minimize the impact of mura through process improvement, product design optimization, etc. Low‐gray lens mura is an important one which affect display quality. This paper provides an effective direction for optimizing the process parameters of exposure machine and product design to weakening the influence of lens mura.

Double managerial delegation contracts with relative profit performance and environmental performance incentives under emission taxes

AbstractThis paper examines the strategic relations between emission taxes and firms' managerial delegation contracts, which include incentives based on relative profit performance (RPP) and environmental performance (EP). We demonstrate that under quantity (price) competition, the government imposes higher (lower) emission taxes, while the firm owner sets lower (higher) EP incentives and negative (positive) RPP incentives, which leads to lower (higher) welfare. We also explore an endogenous competition mode game and find that quantity (price) competition emerges when both consumers' green willingness‐to‐pay (WTP) and product differentiation are low (high). Our findings suggest that public education on greenness is crucial for enhancing EP incentives in the design of managerial delegation contracts, while intense product market competition may be detrimental to consumers and society, especially when consumers' green WTP is low.

Strategic interactions and the sensitivity of cash savings to stock price

We examine how strategic interactions, i.e., strategic substitutes (SS) and strategic complements (SC), affect the sensitivity of cash savings to stock price. Using a panel data of U.S. firms over the 1997–2019 period, we show that cash savings are more sensitive to stock price among SS than SC and the intensity of rivals’ interactions in product market increases this sensitivity. These results are consistent with research showing that SS are more responsive to product market competition. We further show that R&D intensities and corporate hedging needs act as two channels through which strategic interactions affects cash holdings. First, R&D intensities increase the sensitivity of cash to stock price. This effect is more pronounced among SS, complementing researching showing stock market reacts more strongly to innovation by SS. Second, we report that hedging needs decrease the sensitivity of cash savings to stock price, especially for SC, consistent with the notion that using differentiated inputs increases hedging costs, hence, SC are more conservative in their liquidity management.

Can retail investor activism inhibit corporate greenwashing behavior: Evidence from investor interactive platforms in China

Different from developed markets, China capital market is dominated by retail investors. In the digital age, retail investors are increasingly making their voice heard through online channels, which is a new form of shareholder activism in China. This paper examines the association between retail investor activism (RIA) and corporate greenwashing behavior (CGB) using the data of question raised by investors on official investor interactive platforms (IIPs) in China. We discover that the RIA on IIPs is negatively associated with CGB. The mechanism analysis shows that the RIA helps to curb CGB through promoting information transparency and improving internal corporate governance level. We also find that the association between RIA and CGB is strengthened in regions with weaker green finance and environmental regulation, and in industries with weaker product market competition. This indicates that the RIA, a type of private governance, can serve as a substitute to the governance effect of the government and the product market. Further studies show that RIA on unofficial channels such as stock forums or search engines can promote CGB, contrary to the conclusion about IIPs. Our research suggests that strengthening the rights of retail investors through official channels helps to reduce CGB and demonstrates the importance of official channels in the governance role of RIA in emerging markets.

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.

The impact of trademark intensity on firm performance: Unraveling the role of product market competition, total factor productivity, and SG&A efficiency

AbstractUsing the market‐based‐view of the firm, this study investigates the relationship between trademark intensity and firm performance under the conditions of product market competition, total factor productivity, and SG&A efficiency. Higher trademark intensity is more positively associated with performance, and this positive association is amplified under higher product market competition or weakened under higher SG&A efficiency or total factor productivity. To address potential endogeneity, we employ partialing out lasso regression and cross‐fit partialing out lasso regression techniques, which yield consistent results. The findings provide valuable insights into the interplay between trademark intensity and firm performance.

Do customers matter in currency hedging policies? Evidence from product warranties

AbstractUsing a data set of US manufacturing firms with sales from foreign operations, we find that firms' currency hedging activities vary with their warranty obligations. The positive link of warranty obligations to currency hedging policies prevails in financially more constrained firms, companies facing fiercer product market competition and corporations producing more unique products. Our results suggest that firms are likely to incorporate their contractual commitments to customers into their currency hedging activities, especially when their failures to honor these commitments are more likely or costly.

Online sales and stock price synchronicity: Evidence from China

This paper investigates the effect of online sales on stock price synchronicity using the unique data of Chinese listed companies' online sales from e-commerce platforms. We document three notable findings. First, online sales are negatively associated with stock price synchronicity, suggesting that online sales facilitate the incorporation of firm-specific information into stock prices. Second, online sales reduce stock price synchronicity through analyst coverage and media coverage. Third, the synchronicity-reducing effect of online sales is stronger in firms with lower levels of urban Internet development, more competitive product markets, and worse earnings quality. Overall, our analyses suggest that online sales are an important determinant of stock price synchronicity.

Asymmetric Performance Evaluation Under Quantity and Price Competition with Managerial Delegation

Abstract In this paper, we consider asymmetric performance evaluation contracts under different product market configurations with managerial delegation and specify the optimal decision-making by the social and relative performance evaluation firms. We present a reversal result on the owner’s choice of the social performance and relative performance evaluation contract as the product market competition type changes from quantity to price competition. Surprisingly, results indicate that the consumer surplus increases as the degree of product substitution increases under quantity competition in a specific economic environment. A firm that considers social performance evaluation produces less, charges a higher price, and earns a lower profit than a firm that uses relative performance evaluation. We also endogenize the choice of performance evaluation systems. While relative performance emerges as the endogenous choice under both modes of product market competition, it leads to lower consumer surplus and social welfare in comparison to an asymmetric performance evaluation system.

Foreign ownership and product market competition's influence on firm performance: Mediating role of the corporate governance index

AbstractThis study examines the influence of foreign ownership and product market competition on firm performance in Vietnam's listed companies through the mediating role of the corporate governance index. Moreover, the study explores the moderating role of business strategy in the relationships between foreign ownership, product market competition, and firm performance. We use maximum likelihood structural equation modeling in Stata 14 software to analyze the data collected from 180 Vietnamese listed companies from 2015 to 2019. The results indicate that foreign ownership and product market competition positively influence firm performance by mediating the corporate governance index. Business strategy negatively moderates the relationship between product market competition and firm performance. This study has implications for managers focusing on foreign ownership and product market competition to improve corporate governance systems, enhancing firm performance. Additionally, managers may build business strategies when product market competition increases to avoid negative effects on firm performance.

Does media coverage of firms' environment, social, and governance (ESG) incidents affect analyst coverage and forecasts? A risk perspective

We examine whether and how media coverage of firms' environment, social, and governance (ESG) incidents is associated with analyst coverage and forecasts. We propound that the risks of firms could either increase or decrease as a result of media-covered ESG incidents, depending on the firms' actions on the media coverage, and thus its impact on analyst coverage and forecasts would vary. Based on a sample of U.S. listed companies, we find evidence that the level of analyst coverage is negatively associated with a firm's ESG incidents covered by the media. This association is more pronounced for firms with more intense industrial product market competition, more severe ESG scandals, or coverage by less sophisticated analysts. We also find that the firms' ESG incidents covered by the media would lead to higher levels of forecast error and dispersion. Our mediation analysis further reveals that business risk and information risk tend to be higher for firms covered by the media for having been involved in ESG incidents, thereby explaining why the analysts' coverage and forecasts for these firms are adversely affected. Overall, our results highlight the importance of curbing corporate social irresponsibility and improving analyst performance in forecasting.

The role of options markets in corporate social responsibility

We explore the relationship between options trading and corporate social responsibility (CSR). We find that options trading can enhance CSR by (i) fostering shareholder activism, as indicated by increased long-term and socially responsible institutional ownership and CSR proposals and (ii) intensifying product market competition, which spurs green innovation and product-related CSR initiatives. The positive effects are more pronounced in well-governed firms but diminished in firms with managerial entrenchment. Moreover, CSR improvements driven by options trading positively influence firm value, with notable enhancements in environmental performance. Our results underscore that options markets play a crucial role in promoting responsible corporate practices.