Ownership structure, product market competition and productivity

Khadija Mnasri · Dorra Ellouze

42 citations0/0 files storedManagement Decision

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Corporate Finance and Governance Firm Innovation and Growth Family Business Performance and Succession

Abstract

Purpose – The purpose of this paper is to investigate the impact of product market competition and ownership structure on total factor productivity and the interaction between these two governance tools. Design/methodology/approach – Using a sample of 90 Tunisian non-financial firms over the period 1998-2012, the authors use fixed effects and Generalized Method of Moments models to test the complementary/substitutability effect between family ownership and competition. Findings – The authors find that product market competition boosts productivity in that it mitigates agency problems. Moreover, the authors show that large blockholders have a positive impact on firms’ performance. When considering ownership types, it seems that families play an important role in improving productivity. However, this ownership structure is less effective when firms operate in competitive industries. Thus, the results suggest that a substitution effect exists between internal governance mechanisms (particularly family ownership) and competition. Practical implications – Tunisian politicians must review the investment code and remove barriers and restrictions in order to assure fair product market competition. Also, regulation must be changed to encourage foreigners’ shareholding and the creation of private equity firms. Moreover, large shareholders operating in a competitive environment should open up their capital to new shareholders in order to undertake more investments and to benefit from certain advantages. Originality/value – To the best of the authors’ knowledge, this is the first study to examine the effect of product market competition on the relation between corporate governance and productivity in the Tunisian context. Moreover, the complementary/substitutability effect between family ownership and competition has not been examined before in any context.

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References

1998Initial conditions and moment restrictions in dynamic panel data models 1998Law and Finance 1995Initial conditions and moment restrictions in dynamic panel data models 1986Large Shareholders and Corporate Control 2000The separation of ownership and control in East Asian Corporations 1982Moral Hazard in Teams 2002Disentangling the Incentive and Entrenchment Effects of Large Shareholdings 2002The ultimate ownership of Western European corporations

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