Product Market Competition, Corporate Governance And Corporate Performance

Most of the papers of corporate governance research mainly focus on the conflicts of owners and managers derived from the classical "separation of ownership". The content includes the market for corporate control, board of directors, management compensation, ownership structure and corporate debt management and so on. However, the fact is these governance mechanisms do not achieve the goal of what people imagine. With the in-depth study of corporate governance, competition is also considered as an important part of the corporate governance mechanism. In the fierce market competition, on the one hand, the management is faced with business failure and the risk of loss of job, and thus is forced to reduce moral hazard and enhance management efficiency; on the other hand, the competition is also a way to pass on benchmarking of business performance information of the management. It's useful to reduce information asymmetry between the principal and the agent. As an important external governance mechanism, what a kind of relationship does product market competition and corporate internal governance share? This paper is based on the endogenous perspective of corporate governance and product market competition to analyze the relationship between corporate governance and product market competition. From the result we find that:(1) Product market competition affects the company's agency costs. The regression results of product market competition and agency costs show that the improvement of product market competition can reduce agency costs and improve agent efficiency.(2) Product market competition has different effects on different dimensions of corporate governance. From the perspective of overall corporate governance index, product market competition is positively related to the overall corporate governance index. The higher level of product market competition, the higher the overall governance index, the stronger the board of directors governance, the stronger the board of supervisors governance, but the lower the acts of controlling shareholders and shareholder rights index. Therefore, product market competition has different effects on different dimensions of corporate governance.(3) As a whole, Product market competition and corporate governance are complementary. But the relationship between the four different dimensions of corporate governance and product market competition are different. The relationship between product market competition and the board governance, the governance of supervisor board, executive incentives is complementary, while the relationship between product market competition and the behavior of controlling shareholders and shareholder's equity is substitute. In improving corporate performance, both the level of competition in product markets and the improvement of corporate governance should be strengthened.(4) Competition may be multi-dimensionally measured. In this paper, empirical analysis using three indicators to measure product market competition reach the same conclusion, indicating that product market competition can be a multi-angle measurement.(5) Through the analysis of the difference of corporate performance of different degree of product market competition and different governance strength, this paper finds that when both the degree of product market competition and governance strength are higher, corporate performance is better. So only by simultaneously improving product market competition conditions and corporate governance can effectively improve company's performance and corporate value.In this paper, empirical analysis shows that product market competition has an impact on corporate governance, corporate governance was born in the objective environment which the company lies in. We find that product market competition has different impact on the different corporate governance mechanisms. The result shows that product market competition and corporate governance are complementary. This paper enriches the ways of product market competition affecting the company's performance. Through the empirical analysis we can draw the following policy recommendations on corporate governance practice, the one-size-fits-all corporate governance model does not hold true to corporate governance. Corporate governance should be based on different circumstances and be reasonable matched to achieve good governance effect.