Internal Corporate Governance, Product Market Competition And Corporate Performance

With reform and opening up and the development of market economy, our country has entered an important period for economic system transformation. As the production of shunt economy, corporate governance is becoming the most important framework of modern corporate system, it is also interpreted as one necessary condition for company to enhance competition ability and improve operation performance.Internal corporate governance is the core part of corporate governance, which refers to the board of directors, stockholders, management and the board of supervisors. The sound internal corporate governance can effectively coordinate interest among stakeholders and balance the relationship between each other.It can also make the interests of stakeholders being a equilibrium state, so that the corporate can bring into full play the advantages during the process of pursue the maximized interests.Product market competition is an essential part of outside corporate governance system. The client can know more about whether the management work hard and the level executive ability through the competition in the market. Therefore, it is conductive to decrease the degree of information asymmetry between principles and agents. At the same time, market competition can supervise and control agent behavior effectively.However, there is not an unified conclusion about the relationship among internal corporate governance, product market competition and operation performance, which is may not because product market competition or internal corporate governance is ineffective but previous researches may ignore the interaction between them. Many research results have proved that both of them have influences on organization performance. Internal corporate governance and product market competition are closely connected. The outcome will always be biased if the relativity between them is ignored. This may be the reason why the present study conclusion is inconsistent even contradictory. Therefore, when we study the influences on corporate governance, we should not only think about the importance of internal corporate governance and product market competition independently, but also respect to the interaction between them. In other words, there may exist complementation or substitution between them.Based on the relevant theories, we investigate the relation among internal corporate governance, product market competition and corporate governance. First, we use translog production function stochastic frontier model to estimate TFP, dependent variable, which is taken as the index of corporate governance. Internal corporate governance and product market competition are independent variables. There is not a reasonable index to reflect product market competition. We draw lessons from previous research and use Herfindahl-Hirschman Index as the index. As for internal corporate governance, we use director scale, ownership concentration and executive pay.In the part of robust test, we use independent director instead of director scale, with other variables remain unchanged.The organic combination of internal corporate governance and product market competition can raise operation performance effectively, however, under different product market competition environment, the work of internal corporate governance will not the same. Through our research,we find that good internal corporate governance can increase corporate performance, director scale, concentrated ownership and CEO duality is substitute for product market competition respectively,while the executive pay,the proportion of the independent directors and product market competition on corporate governance are complementary.