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National Governance Quality, Competition and Firm Investment

Author

Listed:
  • Phan Quynh Trang

    (Faculty of Finance and Banking, Ho Chi Minh City Open University, Ho Chi Minh City, Vietnam)

  • Nguyen Van Diep

    (Faculty of Finance and Banking, Ho Chi Minh City Open University, Ho Chi Minh City, Vietnam)

Abstract

This study investigates how market competition affects firm investment and the moderating effect of national governance quality (CGI) on the relationship between competition and firm investment in research and development (R&D) and tangible assets. The sample consists of 16,493 observations from World Bank Enterprise Surveys (WBES) in 88 countries in 2016 – 2022. The regression results show that both the competition and the level of market competition encourage firms to invest more in R&D and tangible assets. The quality of national governance also adjusts the relationship between competition and firm investment. Notably, the better quality of national governance strengthens the relationship between competition and firm investment. However, it weakens the relationship between a higher degree of competition and firm investment. In addition, the marginal effects examination suggests that variations in the quality of national governance influence the relationship between competition and investment in R&D investment, which is more pronounced than tangible investment in the presence of at least one competitor. In conclusion, the relationship between competition and investment is moderated by changes in CGI, the starting level of CGI score, and the market structures. The empirical results propose some implications for firm managers and policymakers to boost investment and a transparent environment for firm investment.

Suggested Citation

  • Phan Quynh Trang & Nguyen Van Diep, 2025. "National Governance Quality, Competition and Firm Investment," Economics, Sciendo, vol. 13(1), pages 449-466.
    • Handle: RePEc:vrs:econom:v:13:y:2025:i:1:p:449-466:n:1020
    DOI: 10.2478/eoik-2025-0021
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    References listed on IDEAS

    as
    1. Tao Zeng, 2019. "Country-level governance, accounting standards, and tax avoidance: a cross-country study," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 27(3), pages 401-424, September.
    2. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "Democracy, Governance, and Economic Growth: Theory and Evidence," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.), International Trade, Capital Flows and Economic Development, chapter 8, pages 215-248, World Scientific Publishing Co. Pte. Ltd..
    3. Cenni, Stefano & Monferrà, Stefano & Salotti, Valentina & Sangiorgi, Marco & Torluccio, Giuseppe, 2015. "Credit rationing and relationship lending. Does firm size matter?," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 249-265.
    4. repec:bla:rdevec:v:6:y:2002:i:2:p:225-47 is not listed on IDEAS
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    More about this item

    Keywords

    competition; firm investment; national governance quality; research and development; tangible assets;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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