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Competition and Corporate Governance: Substitutes or Compliments? Evidence from the Warsaw Stock Exchange

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  • Irena Grosfeld
  • Thierry Tressel

Abstract

In this paper we analyze the impact of product market competition and ownership structure on corporate performance. We focus on the firms listed on the Warsaw Stock Exchange, which are either privatised or newly created firms. First, we study the separate effects of competition and ownership concentration on firm level productivity growth. Next, we investigate their interaction: are they substitutes or complements? We take care of the crucial problem of potential endogeneity of explanatory variables by using GMM estimators proposed by Arellano and Bond (1991). We also control for several types of selection bias that could affect the productivity levels. Moreover, we control for industry fixed effects affecting the rate of growth of productivity. Our results show that product market competition has a positive and significant impact on performance. Concerning the effect of ownership concentration, we find a U-shaped relationship with performance. Firms with relatively dispersed ownership (no shareholder with more than 20 per cent of voting shares) and firms, in which one shareholder has more than 50 per cent of voting shares, have higher productivity growth than firms with an intermediate level of ownership concentration. This correlation between concentration of ownership and productivity growth is not explained by the type of the controlling shareholder. Finally, product market competition and good governance te and to reinforce each other rather than to be substitutes. Competition has no significant effect on performance for the firms with 'poor' governance; on the contrary, it has significant positive effect in the case of firms with 'good' corporate governance.

Suggested Citation

  • Irena Grosfeld & Thierry Tressel, 2001. "Competition and Corporate Governance: Substitutes or Compliments? Evidence from the Warsaw Stock Exchange," William Davidson Institute Working Papers Series 369, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2001-369
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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp383.pdf
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    Cited by:

    1. 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.
    2. Michal Gorzynski, 2002. "Consolidation of ownership and market consolidation: the role of relational investors on the Polish beer market 1990-1999," UCL SSEES Economics and Business working paper series 11, UCL School of Slavonic and East European Studies (SSEES).
    3. Jan Hanousek & Evžen Kočenda & Jan Svejnar, 2007. "Origin and concentration," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(1), pages 1-31, January.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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