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Do Corporate Control and Product Market Competition Lead to Stronger Productivity Growth? Evidence from Market-Oriented and Blockholder-Based Governance Regimes

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  • Koke, Jens
  • Renneboog, Luc

Abstract

We investigate the impact of corporate governance and product market competition on productivity of German and U.K. firms. We find a strong positive relation between productivity and product market competition and various governance mechanisms. In poorly performing U.K. firms, the presence of strong outside blockholders leads to substantial increases in productivity. In contrast, for poorly performing and distressed German firms, it is bank debt concentration that stimulates productivity growth. Whereas high bank debt concentration also supports productivity growth in profitable German firms, leverage is unrelated to productivity growth in U.K. firms. Weak product market competition in the United Kingdom has a negative impact on productivity growth in both widely held and concentrated firms, with the exception of firms controlled by insiders. For profitable German firms, only control by banks, insurance firms, and the government can somewhat reduce the negative effect of weak product market competition.

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  • Koke, Jens & Renneboog, Luc, 2005. "Do Corporate Control and Product Market Competition Lead to Stronger Productivity Growth? Evidence from Market-Oriented and Blockholder-Based Governance Regimes," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 475-516, October.
  • Handle: RePEc:ucp:jlawec:y:2005:v:48:i:2:p:475-516
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    Cited by:

    1. Martynova, Marina & Renneboog, Luc, 2009. "What determines the financing decision in corporate takeovers: Cost of capital, agency problems, or the means of payment?," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 290-315, June.
    2. Tian, Gloria Y. & Twite, Garry, 2011. "Corporate governance, external market discipline and firm productivity," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 403-417, June.
    3. repec:kap:asiapa:v:34:y:2017:i:2:d:10.1007_s10490-016-9489-5 is not listed on IDEAS
    4. Coricelli, Fabrizio & Driffield, Nigel & Pal, Sarmistha & Roland, Isabelle, 2012. "When does leverage hurt productivity growth? A firm-level analysis," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1674-1694.
    5. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    6. Manoranjan Pattanayak Author- Workplace-Name: CRISIL LIMITED & Manoj Pant, "undated". "Corporate Governance, Competition and Firm Performance: Evidence from India," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 10-07, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    7. Byung-Seong Min & Peter Verhoeven, 2013. "Outsider Board Activity, Ownership Structure and Firm Value: Evidence from Korea," International Review of Finance, International Review of Finance Ltd., vol. 13(2), pages 187-214, June.
    8. Luc Renneboog & Peter G. Szilagyi, 2008. "Corporate Restructuring and Bondholder Wealth," European Financial Management, European Financial Management Association, vol. 14(4), pages 792-819.
    9. Jana P. Fidrmuc, 2006. "Channels of Restructuring in Privatized Czech Companies," Working Papers wpn06-18, Warwick Business School, Finance Group.
    10. Crafts, Nicholas, 2011. "British Relative Economic Decline Revisited," CEPR Discussion Papers 8384, C.E.P.R. Discussion Papers.
    11. Belkhir, Mohamed & Boubaker, Sabri & Rouatbi, Wael, 2013. "Excess control, agency costs and the probability of going private in France," Global Finance Journal, Elsevier, vol. 24(3), pages 250-265.
    12. repec:dau:papers:123456789/3189 is not listed on IDEAS
    13. Joze P. Damiajn & Aleksandra Grogoric & Janez Prasnikar, 2004. "Ownership Concentration and Firm Performance in Slovenia," LICOS Discussion Papers 14204, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    14. Renneboog, L.D.R. & Szilagyi, P.G., 2006. "How do Mergers and Acquisitions Affect Bondholders in Europe? Evidence on the Impact and Spillover of Governance and Legal Standards," Discussion Paper 2006-55, Tilburg University, Center for Economic Research.
    15. Bulan, Laarni & Sanyal, Paroma & Yan, Zhipeng, 2010. "A few bad apples: An analysis of CEO performance pay and firm productivity," Journal of Economics and Business, Elsevier, vol. 62(4), pages 273-306, July.
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    17. repec:eee:ecosys:v:41:y:2017:i:2:p:179-202 is not listed on IDEAS
    18. de La Bruslerie, Hubert, 2013. "Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer?," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 88-107.
    19. Hubert De La Bruslerie, 2010. "The Equal Opportunity Rule in Transfer of Control: A Contractual Model," Post-Print halshs-00636613, HAL.
    20. repec:ipg:wpaper:2014-605 is not listed on IDEAS
    21. Raul V. Fabella, 2017. "Competition, Regulation and Institutional Quality," UP School of Economics Discussion Papers 201701, University of the Philippines School of Economics.
    22. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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