The Impact Of Product Market Competition On Enterprise Efficiency

In modern enterprises, the principal agency problem reduces the effort of managers in efficiency. As an external mechanism of corporate governance, product market competition can encourage managers to reduce diligence so as to enhance efficiency. Currently, business efficiency studies mostly concentrated on the enterprise’s economic performance or market performance indicators which generally measured by Tobin’s Q, ROE, etc. This paper uses Data Envelope Analysis(DEA) of the Malmquist index to measure the operational efficiencies of more than 400 companies in Chinese manufacturing in the 2003-2013 years and analyzes the impact of product market competition to business efficiency from multiple perspectives. We found that:(1) Overall, product market competition is possible to form competitive pressure on a company manager, resulting in a significant positive impact on the company’s efficiency.(2) The higher the competitive position of enterprises, the less the impact of competition on its operational efficiency.(3) The impact of market competition on SOE’s efficiency is less than the impact on non-state enterprises’ efficiency.(4) The larger the market index of areas, the greater the impact of competition on enterprise efficiency.Through empirical analysis we found that the mechanism of product market competition on the efficiency of enterprises is not unitary. This enriches studies on the effect of product market competition on the efficiency of enterprises. For Chinese enterprises in the process of economic transformation, the paper has reference meaning on the development of related policies.