Product market competition, agency cost and dividend payouts: new evidence from emerging market

PurposeThis paper documents the impact of product market competition on the value of advertising expenditures.Design/methodology/approachThe authors use the data for non-financial firms from India and the pooled regression procedure to test their arguments during the period between 2009 and 2018.FindingsThe results show that advertising expenditures of firms operating in sectors with relatively high competition are more valuable than advertising expenditures of firms operating in sectors with relatively low competition. The results of the study are robust across various proxies of advertising expenditures and firm performance. Furthermore, the results also show that the positive impact of product market competition on the value of advertising expenditures is confined only to firms that already have lower agency problems.Originality/valueThe results of the study highlight the importance of product market competition on the value of advertising expenditure in the emerging market setting, where agency problems are supposed to be high.

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Investor Protection and the Substitution Effect of Corporate Governance and Product Market Competition on Firm Value

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x20936792 ◽

2020 ◽

pp. 0148558X2093679

Author(s):

Joseph R. Rakestraw

Keyword(s):

Corporate Governance ◽

Firm Value ◽

Market Competition ◽

Investor Protection ◽

Cost Benefit ◽

Product Market ◽

Substitution Effect ◽

Agency Cost ◽

Product Market Competition ◽

Country Level

International research has firmly established that a substitute relationship exists between corporate governance and product market competition on firm value. In this study, I reexamine this substitution effect in an international setting, allowing the relation to vary with investor protection. As hypothesized, I find that investors place a higher value on the substitution effect of corporate governance and product market competition in countries where the legal and regulatory mechanisms to protect investors are weak. This finding suggests that country-level investor protection has a moderating role in affecting the substitution between product market competition and corporate governance on firm value. These results, which are robust to several sensitivity tests and alternative specifications, are consistent with an equity agency cost benefit, resulting from product market competition and corporate governance, which is valued more by investors where investor protection is weak.

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