Corporate Governance Quality and a Firm’s Adaptation to Competitive Threats
Journal Title: Finance a uver - Year 2017, Vol 67, Issue 1
Abstract
This paper shows that regulatory improvements of corporate governance quality mandated by the Sarbanes-Oxley Act (SOX) are associated with a better ability of firms to adapt to product-market competitive threats. We contribute to prior research by using a novel approach of capturing the dynamic forward-looking aspect of competitive intensity based on linguistic comparison of firms’ product descriptions in 10-K filings. Our measure of competitive intensity – the product market fluidity – captures the increase in verbal similarity of rival firms’ product descriptions. Mandated changes to corporate governance are associated with lower future operating profitability and the profitability reductions are more pronounced in firms that experience lower competitive pressure before SOX implementation. However, firms facing competitive threats experience smaller declines in operating performance in the post-SOX period, which suggests that the improved corporate governance mechanisms make firms better able to accommodate competitive pressure. Using a novel approach to capture the dynamic aspect of competitive intensity the paper provides a new perspective on the ‘substitution’ hypothesis between corporate governance and product market competition.
Authors and Affiliations
Jan Kurzeja, Jiri Novak
Keywords
Related Articles
- EP ID EP296935
- DOI -
- Views 139
- Downloads 0
Determinants of Capital Structure: Family Businesses versus Non-Family Firms
The study applies a GMM technique to a panel data sample of 2,093 private Spanish companies, 1,434 of which are family firms to investigate whether or not the capital structure of family business differs from that of non...
Which Came First, the Chicken or the Egg? Banks and Firms on Local Banking Markets
This study investigates the interactions between the financial health of cooperative banks and the performance of small and medium-sized enterprises (SMEs). Using a unique dataset on local banking markets in Poland, we e...
Did Investors Seeking Short Exposure Move to the CDS Market after the 2011 Short-Sale Bans in European Financial Stocks?
This paper addresses the effects that the August 2011 ban on covered short selling has had on the trading behavior of credit default swap (CDS) contracts. Overall, the results obtained suggest that CDS protection buying...
Has CEFTA Increased Members’ Mutual Trade? Evidence with an Enlarged Set of Plausibly Exogenous Instruments
The objective of the paper is to measure the effect of the Central European Free Trade Agreement (CEFTA) in its today’s composition on members’ mutual trade. Special consideration is given to CEFTA endogeneity stemming f...
Quantifying the Effects of the CNB's Exchange Rate Commitment: A Synthetic Control Method Approach
In this paper I evaluate the quantitative effects of the Czech National Bank’s commitment to keep the Koruna from appreciating that were put in place in 2013. I focus on the policy’s impact on output, unemployment, and i...