IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Corporate Governance Quality and a Firm’s Adaptation to Competitive Threats

Listed author(s):
  • Jan Kurzeja

    ()

    (Institute of Economic Studies at the Faculty of Social Sciences, Charles University in Prague)

  • Jiri Novak

    ()

    (Institute of Economic Studies at the Faculty of Social Sciences, Charles University in Prague)

This paper shows that regulatory improvements of corporate governance quality mandated by the Sarbanes-Oxley Act (SOX) are associated with a better ability of firms to adapt to product-market competitive threats. We contribute to prior research by using a novel approach of capturing the dynamic forward-looking aspect of competitive intensity based on linguistic comparison of firms’ product descriptions in 10-K filings. Our measure of competitive intensity – the product market fluidity – captures the increase in verbal similarity of rival firms’ product descriptions. Mandated changes to corporate governance are associated with lower future operating profitability and the profitability reductions are more pronounced in firms that experience lower competitive pressure before SOX implementation. However, firms facing competitive threats experience smaller declines in operating performance in the post-SOX period, which suggests that the improved corporate governance mechanisms make firms better able to accommodate competitive pressure. Using a novel approach to capture the dynamic aspect of competitive intensity the paper provides a new perspective on the ‘substitution’ hypothesis between corporate governance and product market competition.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://journal.fsv.cuni.cz/storage/1379_novak_final_issue_01_2017.pdf
Download Restriction: no

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 67 (2017)
Issue (Month): 1 (March)
Pages: 53-78

as
in new window

Handle: RePEc:fau:fauart:v:67:y:2017:i:1:p:53-78
Contact details of provider: Postal:
Opletalova 26, CZ-110 00 Prague

Phone: +420 2 222112330
Fax: +420 2 22112304
Web page: http://ies.fsv.cuni.cz/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:67:y:2017:i:1:p:53-78. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.