External Manager Market, Product Market Competition And Corporate Governance Effectiveness

During the process of economic system reform in China, the markets’resource allocation function becomes more significant. External market mechanisms those throughout all sectors of economic system have all kinds of direct or indirect connections with the enterprises. Though those connections, the market could guide and govern the activities of the companies, standardize the operation and make up for the deficiency of internal governance. As an important part of the labor market, manager market plays a significant role in optimizing manager human capital allocation and improving the operating performance of the company. In addition, the competition of product market is considered as effective solution to handle agency problems between owners and managers. Based on the characteristics of manager market and product market in economic transition period of China, this research tries to reveal the impact mechanism of manager market on governance effectiveness and the interaction between manager market and product market.Taking the non-financial A-share listed companies as the research sample, this paper constructs the manager market index, and examines the effects of external manager market supply on agency cost, agency efficiency, executive compensation contract and top manager turnover, successively and respectively. And then, the study investigates the impacts of manager market on the agency cost and agency efficiency by considering the interaction effect of product market competition. Based on the empirical analysis, the main results are as followings:1. The external manager market development degree has a positive correlation with the agency cost and the agency efficiency. The results indicate that the resource allocation function of manager market has been basicallyrealized, but due to the social culture and institutional environment, external recruitment could not only increase the operating efficiency but also monitoring cost.2. A well-developed external manager market has positive effect both of the executive compensation and the pay-performance sensitivity, but no significant influence on top manager turnover. The results show that the external market plays a part in the executive governance by improving the incentive mechanism rather than changing top manger.3. The product market competition could decrease agency cost and increase agency efficiency effectively. And intense competition could weaken the impact of manager market on agency cost and strengthen its influence on agency efficiency.The results demonstrate the function mechanism of manager market on corporate governance, the passive effect on agency cost due to the deficiency of manager market, and the relations could be improved on account of the existence of product market competition. The research findings have important implications for the constructions of both manager market and product market and the choice of governance mechanisms, which may provide significance of theoretical value and practical implications.