This paper investigates the main channels of increased firm value when product market competition and corporate governance interact to affect corporate behavior and therefore firm value. Empirically, we confirm that corporate governance has a signific...
This paper investigates the main channels of increased firm value when product market competition and corporate governance interact to affect corporate behavior and therefore firm value. Empirically, we confirm that corporate governance has a significantly negative effect on corporate payout and investment expenditure in non-competitive market while this effect disappears or decreases in competitive market. These results are robust to alternative measures of corporate governance and product market competition. We conclude that the substitution effect between product market competition and corporate governance on firm value and operating performance observed in existing literatures is due to the disciplined payout and investment policy.