Agency Conflict, Product Market Competition And Stock Idiosyncratic Risk

Idiosyncratic risk, that is idiosyncratic return volatility, reflect the performance of listedcompanies. Overall idiosyncratic risk trait of listed companies can reflect the efficiency level ofthe stock market in their country(region)(Ang et al.,2006,2009). From the perspective of theindustry viewpoint, rising volatility trait should be attributed to the increasingly fiercecompetition. Changes in the company’s industry structure and competitive environmentintensified market competition, improved corporate earnings uncertainty thereby exacerbate thevolatility of company’s stock, resulting in increased of idiosyncratic risk.(Gaspar andMassa,2006; Ferreira and Laux,2007; Irvine and Pontiff,2009; Wu Hao-Min et al,2012)China is an emerging market economy country. Emerging and transitional dualcharacteristics make the important relationship between the performance of listed companies andthe nature with the structure of property rights. On the one hand, the government-led innovationactivities makes the ultimate controller of the state-owned listed companies have moreinnovation activities, dominated the competition in the industry, but its inefficiency in thecompetition. Coupled with the non-state-owned company “imitate” state-owned company’scompetitive conduct. This "follow" effect increasing the relationship between the competitionand stock idiosyncratic risk; On the other hand, the separation of control power and cash-flowright make the ultimate controlling shareholder have a strong motivation of entrenchment,influence the company’s performance, exacerbated the company’s product market competition,resulting in changes in the characteristics of the company information, final impact therelationship between product market competition and idiosyncratic risk. In addition, theincreased presence of the company’s first class agency problems caused by over-investment ledto inefficient market competition, which, to some extent, will impact on the relationship betweencompetition and idiosyncratic risk.This paper summarizes the research in domestic and foreign. On the basis of the research,we use the data from2003to2012of Chinese non-financial listed companies as sample. Weempirically investigate the relationship between product market competition, agency conflictsand stock idiosyncratic risk.The main conclusions are as follows:1, product market competition will lead to rising stock idiosyncratic risk, namely"competition-the risk of" showing a positive correlation.2, shareholders and exacerbate the problem of agency managers will enhance the company’sstock is listed on the characteristics of risk, and further strengthen the positive relationshipbetween product market competition and stock trait risk. 3, large shareholders and minority shareholders exacerbated agency problems will enhancethe company’s stock is listed on the characteristics of risk, and further strengthen the positiverelationship between product market competition and stock trait risk.4, state the nature of the ultimate controlling person of the listed company’s shares willreduce the risk characteristics, but will strengthen the positive relationship between productmarket competitionFrom the research perspective, intense competition in the product market is indeed a causeof rising stock idiosyncratic risk, in other words, aggregate the volatility of stock return. Ourgovernment-led macroeconomic and specific institutional environment dominated by thestate-owned industry competition, for product market competition (PMC) and exacerbate agencyconflict in company, has become a trait led to a significant increase in volatility importantbackground incentives. In order to ease the volatility of stock returns, stable enhance thecompany’s performance, we need effective market-based governance, for performance principle,dilute "national" differences, and effectively improve the quality of the product marketcompetition, which is the only way that the ultimate pains in promoting China’s new era ofstrategic adjustment of economic growth mode transformation and upgrading of industrialstructure.