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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26328
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| Title: | Does Corporate Governance Matter in Competitive Industries? |
| Authors: | Giroud, Xavier
M. Mueller, Holger |
| Issue Date: | Aug-2007 |
| Series/Report no.: | FIN-07-021 |
| Abstract: | By reducing the fear of a hostile takeover, business combination (BC)
laws weaken corporate governance and create more opportunity for
managerial slack. Using the passage of BC laws as a source of
identifying variation, we examine if such laws have a different effect
on firms in competitive and non-competitive industries. We find that
while firms in non-competitive industries experience a substantial drop
in operating performance, firms in competitive industries experience
virtually no effect. Though consistent with the general notion that
competition mitigates managerial agency problems, our results are, in
particular, supportive of the stronger Alchian-Friedman-Stigler
hypothesis that managerial slack cannot exist, or survive, in
competitive industries. When we examine which agency problem competition
mitigates, we find evidence in favor of a “quiet-life”
hypothesis. While capital expenditures are unaffected by the passage of
BC laws, input costs, wages, and overhead costs all increase, and only
so in non-competitive industries. We also conduct event studies around
the dates of the first newspaper reports about the BC laws. We find that
while firms in non-competitive industries experience a significant
decline in their stock prices, firms in competitive industries
experience a small and insignificant price impact. |
| URI: | http://hdl.handle.net/2451/26328 |
| Appears in Collections: | Finance Working Papers
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