Role Of Product Market Competition Research Articles

The role of product market competition and analyst attention in modulating the link between equity pledges and classification shifting

This study investigates the association between equity pledges and classification shifting earnings management in Chinese listed firms, spanning the period from 2016 to 2022. Additionally, it explores the moderating influence of product market competition (PMC) and analyst attention on this relationship. By analyzing a sample comprising 12,583 firm-year observations, several notable findings are observed. The regression results reveal a positive and statistically significant relationship between equity pledges and classification shifting earnings management (coefficient = 0.00234, p < 0.01). Moreover, this positive impact is further magnified when specifically considering downward classification shifting (coefficient = 0.00368, p < 0.01). Regarding the moderating factors, the results demonstrate a positive moderating effect of PMC on the relationship between equity pledges and classification shifting, with an interaction coefficient of 0.0165 (p < 0.01). This moderating effect is particularly pronounced in the context of downward classification shifting, with an interaction coefficient of 0.0142 (p < 0.01). Similarly, analyst attention also positively moderates the relationship, as indicated by an interaction coefficient of 0.00144 (p < 0.05), with a stronger effect observed in the case of downward classification shifting, with an interaction coefficient of 0.00329 (p < 0.01). Furthermore, additional tests reveal that leverage strengthens the aforementioned moderating effects. The three-way interaction involving debt, PMC, and equity pledges significantly influences classification shifting, with a coefficient of 0.0415 (p < 0.05). Specifically, debt exacerbates the moderating impact of competition on highly leveraged firms that engage in downward classification shifting, as evidenced by a coefficient of 0.0599 (p < 0.05). Similarly, debt reinforces the moderating role of analyst attention (coefficient = 0.00820, p < 0.05), especially for downward classification shifting (coefficient = 0.00902, p < 0.1). Propensity score matching and robustness tests validate the findings. Therefore, this research contributes to the understanding of the economic implications of equity pledge by focusing on earnings manipulation through classification shifting. It also examines this relationship within different competitive environments and external regulatory frameworks, aiming to promote the long-term viability of companies.

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.

How does ESG disclosure promote technological innovation? Moderating effects based on product market competition

PurposeThe primary objective of this study is to unveil the relationships that interconnect ESG and three pillars disclosures with technological innovation while also investigating the moderating impact of product market competition. The paper seeks to identify the underlying mechanisms that facilitate technological innovation in sustainable management.Design/methodology/approachUsing data from 8,738 Chinese firms from 2011 to 2019, this study employs quantitative analysis to examine the relationship between ESG disclosure and technological innovation and the moderating effect. Moreover, this study explores the heterogeneous impacts while considering factors such as property rights and firm size.FindingsThe findings reveal a positive correlation between ESG disclosure and technological innovation. The study also investigates the moderating role of product market competition and finds that increasing competition mitigates the positive effects of ESG disclosure on technological innovation. Additionally, the conclusions reveal that the relationship between ESG and three pillars disclosures and technological innovation, as well as the moderating role of product market competition, exhibits inconsistency across firms with different property rights and sizes.Originality/valueThis study offers a clear understanding of the relationship between ESG disclosures and technological innovation, and how it varies across businesses of different sizes and ownership structures. It also provides fresh perspectives on the influence of product market competition on this relationship, with implications for strategy development in corporations.

Does mandatory recognition of derivatives and hedging activities influence investors’ uncertainty and diversity of opinion? The moderating role of product market competition

ABSTRACT The International Accounting Standard No. 39 and the Statement of Financial Accounting Standard No. 133 were issued to address investors’ concerns regarding the reporting requirements for derivatives and hedging activities. I examine the influence of derivatives recognition, as required by SFAS 133, on investors’ uncertainty and diversity of opinion about the cash flow implications of underlying market rate changes. Using a sample of firms included in the S&P 500 Index, I find a decline in investors’ uncertainty and diversity of opinion after the adoption of SFAS 133 for users of derivatives. Furthermore, I find that investors’ uncertainty and diversity of opinion after the adoption of SFAS 133 is higher for users of derivatives operating in highly competitive industries compared to in less competitive industries. Overall, the study highlights the importance of considering a firm’s competitive environment when implementing recognition practices related to derivatives and hedging activities.

The discipline vs complement role of product market competition and market power: Evidence from real earnings management in an emerging market

We empirically study the role of product market competition and market power, discipline vs complement role, on real earnings management (REM) in Indonesia. Using 1800 firm-year observations from 2012 to 2020, we discover that the competition has an inverse association with REM, implying that product market competition plays a role in disciplining managers from engaging REM. Despite the negative association observed, we do not have evidence of any significant relationship between market power and REM. These findings hold for a set of robustness tests. We also evidenced that the discipline role of competition in REM will be more pronounced after the Economic ASEAN Community (EAC) period and pre-COVID-19 as well as in small firms and income-increasing firms. Although we cannot include corporate governance variable in our model due to data constrain, to the best of our knowledge, the current study will be the first study examining the role of market competition and market power on REM by considering the external shock, EAC period and COVID19, in emerging market such as Indonesia. This study implies that government and capital market regulators need to design and issue new laws or regulations that can encourage the internal governance structure to maximize the potential role of market power to mitigate REM.

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 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 controlling shareholders' tunneling: Evidence from China

This paper provides evidence supporting the disciplinary role of product market competition in controlling shareholders' tunneling. We use the regulation‐induced IPO suspensions in China as shocks to product market competition. With a generalized DID design, we find that reduced product market competition threat, induced by rivals' IPO suspension, increases incumbents' inter‐corporate loans by 0.4 percentage points (pp) and the probability of committing a capital occupation violation by 3.1 pp. The effect of IPO suspension on tunneling is weakened when the product market is highly competitive and more pronounced for companies with problematic agency problems and loose governance mechanisms. Furthermore, we document a reverse effect when IPO suspensions end. This study contributes to the literature on product market competition's disciplinary role by presenting evidence supporting a plausibly causal effect of competition and controlling shareholders' tunneling.

How to Enhance the Green Innovation of Sports Goods? Micro- and Macro-Level Evidence From China’s Manufacturing Enterprises

This study aims to explore the driving factors of green innovation, and uses the micro- and macro-data from China’s sports goods manufacturing industries. In particularly, sports goods manufacturing enterprises are identified by the textual analysis of information disclosure, and the competitive environment faced by each enterprise is built through their unique closest rivals. Empirically, this study finds that competition and policy can promote green innovation in sports goods manufacturing industries, and industrial policy can moderate the role of product market competition in promoting green innovation. Considering the characteristics of the Chinese market, more industrial policies may intensify the competition among manufacturing enterprises, forcing such enterprises to obtain competitive advantages through innovation outcomes. It is worth noting that the association between product market competition and green innovation changes as financial constraints increase, and this may be caused by the impact of industrial policy on the interactions among enterprises. After implementing the strict environmental policy, product market competition and industrial policy can both promote green innovation. In high-polluting industries, sports goods manufacturing enterprises get more social attention and suffer from higher penalties for environmental violations, so that such enterprises will get more motivations from industrial policies to support green innovation. In addition, we also find that there is a significant inverted-U shape relationship between industrial policy and green innovation in sports goods manufacturing industries. As financial constraints increase, the non-linear relationship between product market competition and green innovation converts from a U shape relationship to an inverted-U shape relationship. Our findings can provide a better understanding of the investment of sports goods manufacturing enterprises in green innovation.

Corporate innovation and R&D expenditure disclosures

• This study focuses on voluntary R&D expenditure disclosure. • Firms that report blank R&D expenditure might have patent activities. • Institutional environment affects the reliability of R&D expenditure disclosure. • Chinese firms without R&D expenditure disclosures have fewer innovation outcomes. • Competition mitigates the motivation of R&D expenditure disclosures in China. This study investigates innovation output by examining patents of listed companies with and without R&D expenditure disclosures and the role of product market competition in R&D expenditure disclosure choices when the institutional environment of an emerging market tends to be relatively transparent. Using the data of Chinese listed firms from 2007 to 2014, which provides an appropriate setting for our study, we find a positive relationship between R&D expenditure disclosures and the quantity of patents and patent applications, which is consistent with the institutional hypothesis. Moreover, we show that in the absence of sufficient institutional protection, market competition has a negative effect on R&D expenditure disclosures, which is consistent with the product market competition hypothesis. Further analyses show that this relation is affected by firm size, state ownership, loss-making, and analyst coverage. The results remain consistent after several robustness checks. This study contributes to the literature by shedding light on the usefulness of voluntary R&D expenditure disclosures for predicting innovation outcomes in emerging markets.

Oil shocks, competition, and corporate investment: Evidence from China

Abstract This paper aims to investigate the impact of three classical oil shocks on the Chinese corporate investment by using firm-level data. Moreover, we assess the role of product market competition in the relationship between oil shocks and corporate investment. Our empirical results show that oil aggregate demand and specific demand shocks negatively affect corporate investment, while oil supply shocks show a positive effect. Notably, compared to the non-energy-related industry, the corporate investment of energy-related industry is more sensitive to these oil shocks. Furthermore, we find high competitive pressure can mitigate the impact of oil specific demand shocks on the corporate investment of energy-related industry, but competition presents a limited effect on the relationship between other oil shocks and corporate investment.

Agency problems and the value of advertising expenditures in an emerging market: role of product market competition

PurposeThis paper documents the impact of product market competition on the value of advertising expenditures.Design/methodology/approachThe authors use the data for non-financial firms from India and the pooled regression procedure to test their arguments during the period between 2009 and 2018.FindingsThe results show that advertising expenditures of firms operating in sectors with relatively high competition are more valuable than advertising expenditures of firms operating in sectors with relatively low competition. The results of the study are robust across various proxies of advertising expenditures and firm performance. Furthermore, the results also show that the positive impact of product market competition on the value of advertising expenditures is confined only to firms that already have lower agency problems.Originality/valueThe results of the study highlight the importance of product market competition on the value of advertising expenditure in the emerging market setting, where agency problems are supposed to be high.

Does Market Competition Motivate Corporate Social Responsibility? Insight from Malaysia

This study aims to examine the role of product market competition on Corporate Social Responsibility (CSR) by engaging altruism and utilitarianism views. Using dynamic Generalized Method of Moment panel regression for 524 Malaysian non-financial industry listed companies from 2010 to 2016, we find that firms in a more competitive environments increase their CSR activities. We interpret these results as evidence that CSR is strategically chosen by firms not for the societal benefits, but more on business as usual; a support for utilitarianism view, i.e profit maximizations. It explains the rationale that CSR activities are less employed in a more monopolistic or oligarchic industry. Practically, this study suggests that the CSR activities are forced by market competition. Firms in a more competitive market need CSR as their non-market strategies.

Investor Sentiment, Market Competition, and Financial Crisis: Evidence from the Korean Stock Market

ABSTRACTThis study examines the role of product market competition in explaining the relationship between investor sentiment and stock returns. We also consider how financial crises, which are exogenous shocks to market participants, affect the associations and interactions among the market competition, investor sentiment, and stock market returns. Our empirical analyses indicate that the positive relationship between sentiment and returns found under high market competition disappears under low market competition. In the crisis period, however, we observe significant relationships between sentiment and returns irrespective of the degree of market competition.

EXTERNAL GOVERNANCE AND THE COST OF EQUITY FINANCING

AbstractWe examine whether and how competitive pressure in the product market influences the cost of equity capital. Using a large panel of U.S. public firms, we find that intensification of product market competition results in lower equity financing costs. Our results are statistically significant and economically sizable. In line with the view of the disciplinary role of product market competition, we show that corporate governance, payout policy, and investment policy are channels through which competitive pressure influences the cost of equity capital.

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.

Capital structure, competitive intensity and firm performance: evidence from Pakistan

PurposeThe purpose of this paper is to explore the moderating role of competitive intensity between the existing relationship of capital structure and firm performance.Design/methodology/approachUsing the balanced panel data of listed non-financial firms of Pakistan, the present study adopts both the panel and OLS estimation techniques to draw the inferences.FindingsThe results exhibit that high debt ratio is harmful for the accounting performance of the selected sample firms of Pakistan. In addition, product market competition negatively moderates the relationship between capital structure and firm performance which suggests that high product market competition can be used as a substitute of debt financing to align the interests of a firm’s managers and shareholders.Practical implicationsThe findings of the research provide evidence for the policy makers/regulators that the sample firms should discourage the high debt financing in the presence of competitive intensity in the product marketplace.Originality/valueThe core contribution of the current research is to examine the moderating role of product market competition on the leverage–performance relationship because, to the best of the authors’ knowledge, no single study has previously explored this relationship in the context of Pakistan.

Political connections and cost stickiness: The moderating role of product market competition

The impact of political connections on business organizations, has been the subject of interest for many researches throughout the world. Since executive and non-executive directors, with political connections, can bring diverse benefits to the firm through using their connections and relations with politicians, they are often considered to be really powerful. In addition to investigating the relationship between firm's political connections and cost stickiness, this study also examined the moderating impact of product market competition on this relationship. To this end, the data from 154 listed firms in Tehran Stock Exchange, multiple regression, and panel data model were used. The results showed that firm's political connections would increase cost stickiness, and product market competition mitigated the direct relationship between firm's political connections and cost stickiness.

Do all diversified firms hold less cash? The role of product market competition

We examine the relationship between corporate diversification and cash holdings for a large sample of over 17,500 firms from 12 countries for the period from 1998 to 2013. In contrast to previous studies where diversified U.S. firms hold significantly less cash than their focused counterparts, diversification has a much weaker effect on cash for the international firms in our sample. We show that product market competition is the most important driver of this result. The cash holdings of diversified firms from countries with high import penetration, as well as firms with product divisions in highly competitive industries, are not significantly lower than the cash holdings of focused firms. We provide evidence supporting two channels via which product market competition affects the diversification effect on cash. The competition effect is statistically and economically important only for high R&D intensity firms and for firms with high productivity growth uncertainty.

Effect of Corporate Governance on Cash Holding: The Role of Product Market Competition

Corporate cash holding is among the fundamental areas in corporate finance. Recently, corporate cash holding has gained critical attention due to the dynamic business environment. Both practitioners and academicians have focused on the firms’ cash holding decisions in the recent era. The purpose of this research is to investigate the effect of corporate governance on cash holding and to check the role of product market competition on corporate governance and cash holding relationship. The research investigated that whether product market competition plays substitution role for corporate governance in a relationship with cash holding. Substitution effect argument claims that external market discipline is enough to resolve agency problem between managers and shareholders even firm level governance is weak. For this study, unbalanced panel data of 196 companies from the year 2006 to 2014 is selected. All models include time dummies and industry fixed effect with standard error cluster to the firm. The results show that corporate governance has a significant negative effect on corporate cash holding which supports flexibility hypotheses. Moreover, product market competition has substitution role for corporate governance in relationship with corporate cash holding.