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Product market competition, state-ownership, corporate governance and firm performance

Author

Listed:
  • Li Liu
  • Wen Qu
  • Janto Haman

Abstract

Purpose - The purpose of this paper is to examine the association between firm performance and product market competition (PMC), and then examine the mitigation effect of corporate governance and/or state-ownership (SOEs) in the association between PMC and firm performance using Chinese listed firms. Design/methodology/approach - The authors consider three determinants of the PMC that affect the nature of competition, and use market concentration, product substitutability and market size as proxies for PMC. The authors construct a corporate governance index which measures the extent of board independence, monitoring strength of supervisory board over board of directors, and monitoring strength of board of directors over CEO. The authors use Tobin’s Q as a proxy for firm performance. The authors use a sample of 20,706 firm-year observations listed on the Chinese stock market between 2001 and 2016 to empirically investigate the research questions proposed in the paper. Findings - The authors find that higher PMC is associated with lower firm performance. The authors find that good corporate governance practices moderate the negative effect of higher PMC on firm performance. The association between higher PMC and lower performance is weaker for firms controlled by SOEs compared to non-SOEs. Further, the moderation effect of SOEs on the association between higher PMC and lower performance is more pronounced for firms with good corporate governance practices compared to firms with weak corporate governance practices. Originality/value - Extant studies investigating the relationship between PMC and corporate governance suggest an either complementary or substitution relationship in developed economies. Our study highlights the interactive role played by SOEs and good corporate governance practices in firm performance in highly competitive product markets in an emerging economy. The findings provide insightful information to regulators of other emerging countries that SOEs with good corporate governance practices can play an important role in the economy by mitigating the negative effect of higher PMC on firm performance.

Suggested Citation

  • Li Liu & Wen Qu & Janto Haman, 2018. "Product market competition, state-ownership, corporate governance and firm performance," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 26(1), pages 62-83, February.
  • Handle: RePEc:eme:arapps:ara-05-2017-0080
    DOI: 10.1108/ARA-05-2017-0080
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    Citations

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    Cited by:

    1. I.Khajar & H. Hersugondo & U. Udin, 2018. "Antecedents and Outcomes of Corporate Governance: Evidence from Indonesia," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 480-492.
    2. Ahmed Aboud & Ahmed Diab, 2022. "Ownership Characteristics and Financial Performance: Evidence from Chinese Split-Share Structure Reform," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    3. Gupta, Ranjan Das & Deb, Soumya G., 2023. "Interlinkage between corporate social, environmental performance and financial performance: Firm-mediators in a multi-country context," Finance Research Letters, Elsevier, vol. 52(C).
    4. Tolossa Fufa Guluma, 2021. "The impact of corporate governance measures on firm performance: the influences of managerial overconfidence," Future Business Journal, Springer, vol. 7(1), pages 1-18, December.
    5. Abbas, Jaffar & Balsalobre-Lorente, Daniel & Amjid, Muhammad Asif & Al-Sulaiti, Khalid & Al-Sulaiti, Ibrahim & Aldereai, Osama, 2024. "Financial innovation and digitalization promote business growth: The interplay of green technology innovation, product market competition and firm performance," Innovation and Green Development, Elsevier, vol. 3(1).
    6. Tolossa Fufa Gulema & Zhou Xiaoyan, 2021. "Mediating Role of Innovation Capacity in the Relationship between Corporate governance and Firm Performance: evidence from Chinese listed firms," International Journal of Science and Business, IJSAB International, vol. 5(4), pages 105-122.
    7. Tobias Götze & Marc Gürtler, 2022. "Risk transfer beyond reinsurance: the added value of CAT bonds," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 125-171, January.
    8. Al-ahdal, Waleed M. & Alsamhi, Mohammed H. & Tabash, Mosab I. & Farhan, Najib H.S., 2020. "The impact of corporate governance on financial performance of Indian and GCC listed firms: An empirical investigation," Research in International Business and Finance, Elsevier, vol. 51(C).
    9. repec:ers:journl:v:volumexxi:y:2018:i:issue4:p:480-492 is not listed on IDEAS

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